SCHENECTADY HERDILLIA LT ( NOW KNWON AS SI GROUP- INDIA LTD), NAVI MUMBAI V. ACIT LTU, MUMBAI

ITA 4384/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87978 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 05-01-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 28-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R N DSOUZADR
• Assessee Lawyers: DIVYESH I SHAH
• Keywords: Reopening of assessment; Depreciation; Tangible material; Difference of opinion; Reason to believe; Unabsorbed depreciation; Change of opinion; Reassessment proceedings
• Section: 143(3); 115JB; 32; 147; 6

Judgement Text

, TH THTH TH INCOME TAX APPELLATE TRIBUNAL,MUMBAI - G BENCH. , ! , BEFORE S/SH.VIJAY PAL RAO, JUDICIAL MEMB ER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.4384/MUM/2010, ' ' ' ' # # # # / ASSESSMENT YEAR-2003-04 M/S SCHENECTADY HERDILLIA LTD. (NOW KNOWN AS SI GROUP-INDIA LTD.), PLOT NO. 2/1, T.T.C. INDUSTRIAL AREA, THANE-BELAPUR ROAD, NAVI MUMBAI-4000705 PAN: AAACH7323L VS ACIT, LTU 28TH FLOOR CENTRE NO.1, WORLD TRADE CENTRE, CUFFE PARADE, MUMBAI-400020 ( $% / APPELLANT) ( &'$% / RESPONDENT) '() '() '() '() * * * * / ASSESSEE BY : SHRI DIVYESH I SHAH + * / REVENUE BY : SHRI R.N. D'SOUZA(DR) ' ' ' ' + ++ + ) )) ), , , , / DATE OF HEARING : 05.01.2015 -.# + ), / DATE OF PRONOUNCEMENT : 16-01-2015 ' ' ' '1961 1961 1961 1961 + + + + 254 254 254 254( (( (1 11 1) )) ) )7) )7) )7) )7) 8 8 8 8 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM ! ! ! ! ' ' ' ' : AAACH7323L CHALLENGING THE ORDER DT.08.03.2010 OF THE CIT(A)-2 4,MUMBAI,ASSESSEE-COMPANY HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.1 THE COMMISSIONER OF INCOME-TAX (APPEALS)-LTU, MUMBA I [THE CIT(A)] ERRED IN CONFIRMING THE ACTION OF THE ACIT(LTU) IN INITIATING THE REASS ESSMENT PROCEEDINGS UNDER SECTION 147 OF THE INCOME-TAX ACT, 1961(THE ACT) ON THE ALLEGED GROU ND THAT THE A.O. HAD OVERLOOKED THE EXCESS DEDUCTION OF RS. 2,96,83,027/- CLAIMED BY THE ASSES SEE AND AS SUCH COULD NOT BE SAID TO HAVE FORMED AN OPINION ON THIS POINT AND THUS THERE COUL D BE NO CHANGE OF OPINION ON THIS POINT. 1.2.HE FURTHER ERRED IN MAKING INCORRECT AND/OR IMM ATERIAL AND/OR IRRELEVANT OBSERVATIONS THAT MERELY BECAUSE THE ASSESSEE HAD MENTIONED ALL THIS IN THE STATEMENT OF ACCOUNTS COULD NOT NECESSARILY AMOUNT TO DISCLOSURE WITHIN THE MEANING OF EXPLANATION ITO THE PROVISO. 1.3.HE ALSO ERRED IN RELYING UPON THE DECISION OF J URISDICTIONAL HIGH COURT IN THE CASE OF DR.AMINS PATHOLOGY LABORATORY (252 ITR 673) IN AS MUCH AS THE SAME WAS DISTINGUISH -ABLE ON THE FACTS AND IN LAW. 1.4.THE APPELLANT PRAYS THAT IT BE HELD THAT INITIA TION OF REASSESSMENT PROCEEDINGS WAS BAD-IN-LAW OR OTHERWISE VOID AND AS SUCH LIABLE TO BE QUASHED. 2.1 THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE A .O. IN NOT REDUCING THE AMOUNT OF RS.2,96,83,027/-BEING LOWER OF THE BROUGHT FORWARD BUSINESS LOSS OR UNABSORBED DEPRECIATION OF SSAPL TAKEN OVER BY THE APPELLANT AT THE TIME OF AM ALGAMATION OF SSAPL WITH THE ASSESSEE WHILE COMPUTING THE BOOK PROFIT U/S.115JB OF THE INCOME-T AX ACT, 1961(THE ACT) ON THE ALLEGED GROUND THAT THE SAID AMOUNT HAD BEEN CAPITALIZED AND CONSI DERED AS GOODWILL. 2.2.HE ALSO ERRED IN NOT APPRECIATING THE CORRECT F ACT THAT THE WRITE OFF OF GOODWILL AMOUNT WAS NOT CLAIMED AS DEDUCTION UNDER THE I.T. ACT IN THE SUBSEQUENT YEARS AND AS SUCH NOT RESULTED INTO DOUBLE BENEFIT TO THE ASSESSEE. 2.3.THE APPELLANT PRAYS THAT THE SAID AMOUNT BE ALL OWED AS REDUCTION FROM THE BOOK PROFIT U/S/115JB OF THE ACT. 3.THE APPELLANT CRAVES LEAVE TO ADD TO ALTER OR AME ND THE ABOVE GROUNDS OF APPEAL. THE HAS ALSO FILED FOLLOWING ADDITIONAL GROUNDS OF APPEAL: 1.1.ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE A ND IN LAW, THE ASSISTANT COMMISSIONER OF INCOME-TAX [LTU],MUMBAI (THE A.O.) ERRED IN NOT A LLOWING DEPRECIATION UNDER EXPLANATION 3(B) TO SEC. 32(1) OF THE INCOME TAX ACT, 1961 (TH E ACT) ON THE SUM OF RS. 8,86,57,302/- BEING ITA4384/MUM/2010/SCHENECTADY HERDILLIA LTD.AY.03-0 4 2 GOODWILL SHOWN IN THE BOOKS OF ACCOUNTS OF THE APPE LLANT, PART OF WHICH BEING BROUGHT FORWARD BUSINESS LOSSES OF SCHENECTADY SPECIALITIES ASIA PV T. LTD. (SSAPL) AS PER BOOKS OF ACCOUNTS DISALLOWED BY THE A.O. AT RS. 2,96,83,027/- WHILE C OMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT ON TREATING IT AS GOODWILL. 1.2.THE A.O. ERRED IN NOT APPRECIATING THE FACT THA T DEPRECIATION WOULD BE ALLOWABLE UNDER EXPLANATION 3(B) TO SEC. 32 OF THE ACT ON THE GOODW ILL BEING AN INTANGIBLE ASSET. 1.3.THE APPELLANT PRAYS THAT IT BE HELD THAT THE A. O. BE DIRECTED TO ALLOW THE UNDER EXPLANATION 3(B) TO SEC. 32 ON THE SAID GOODWILL. 1.4.THE APPELLANT CRAVES LEAVE TO, ADD TO OR ALTER OR AMEND ANY OF THE ABOVE GROUNDS OF APPEAL. THE ADDITIONAL GROUNDS OF APPEAL ARE ACCOMPANIED BY AN APPLICATION,WHEREIN IT HAS BEEN STATED THAT THE GROUNDS TAKEN ARE PURELY LEGAL GROUNDS AND DO NOT REQUIRE FINDING OF FRESH FACTS.AFTER GOING THROUGH THE ADDITIONAL GROUNDS,WE ARE OF THE OPINION THAT IN THE INTEREST OF JUSTICE SAME SHOULD BE ADMITTED AS PER THE PROVISIONS OF RULE 1 1 OF THE ITAT RULES,1963,AS THEY GO TO THE ROOT OF THE APPEAL ARE PURELY LEGAL IN NATURE. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING OF ORGANIC HEAVY CHEMICALS,FILED ITS RETURN OF INCOME ON 28.11.2003,DECLARING LOSS OF RS .9,04,45,208/- UNDER NORMAL PROVISIONS AND TOTAL INCOME OF RS.6.12 CRORES U/S.115JB OF THE ACT .THE ASSESSING OFFICER(AO) FINALISED THE ASSESSMENT U/S.143(3) OF THE ACT,ON 30.11.2005,DETE RMINING THE TOTAL INCOME OF THE ASSESSEE AT RS.(-) 4,01,45, 208/-/ AND AT RS.10,71,26,930/- UND ER THE MAT PROVISIONS. 2 .FIRST GROUND OF APPEAL IS ABOUT RE-OPENING OF THE ASSESSMENT BY THE AO BY ISSUING A NOTICE U/S.148 OF THE ACT,AS HE WAS OF THE OPINION THAT TA XABLE INCOME HAD ESCAPED ASSESSMENT.HE ISSUED THE REASSESSMENT NOTICE ON 28.03.2008.REASONS RECOR DED BY THE AO READ AS UNDER: 'ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 28. 11.2003 DECLARING TOTAL LOSS OF RS.9,04,45,2081-. ORDER U/S. 143(3) WAS PASSED ON 3 0. 11.2005 ASSESSING LOSS OF RS 4,01,18,369/-. AS PER SECTION 115JB OF THE INCOME-TAX ACT, 1961 WE COMPUTING HOOK PROFITS FOR THE P URPOSE OF THIS SECTION, ONE OF THE DEDUCTION ALLOWA BLE FROM NET PROFIT IS THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION,WHI CHEVER IS LESS AS PER BOOKS OF ACCOUNTS. RETURN FILED BY THE ASSESSEE FOR A. Y. 2003-04 WAS ASSESSED U/S.143(3) ON 30.11. 2005 DETERMINING NIL INCOME UNDER NORMAL PRO VISIONS AND AT RS. 10,71,26,930/- UNDER SPEC/AT PROVISIONS OF SECTION 1 I5JB, A DEDUCTION OF RE. 8, 85,53,473/- WAS A//OWED TO THE ASSESSEE TOWARDS UNA BSORBED DEPRECIATION AS PER BOOKS. FROM THE BOOKS OF ACCOUNTS FOR THE YEAR ENDE D 31.03.2003 (AFTER MERGER OF SCHENECTADY SPECIALTIES ASIA P.LTD(SSAPL W.E.F.27.0 9.2002), IT WAS SEEN THAT UNABSORBED DEPRECIATION BROUGHT FORWARD AS PER BOOK S OF ACCOUNTS WAS ONLY RS.6,88.70,446/-.HENCE THERE WAS EXCESS DEDUCTION A LLOWED TO THE ASSESSEE AMOUNTING TO RS. 2,96,83,027/-. AS THERE IS A FAILURE ON THE PART OF THE ASSESSEE T O DISCLOSE FULLY AND TRULY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ITS ASSESSME NT,I HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FO R THIS ASSESSMENT YEAR, COMING WITHIN THE MEANING OF SECTION 147 OF THE INC OME-TAX ACT,1961. THE ASSESSEE VIDE ITS LETTER DATED 22.07.2008 OBJEC TED TO REOPENING OF ASSESSMENT STATING THAT THE FACTS OF BROUGHT FORWARD LOSSES WERE MENTIONED IN T HE FIXED ASSET SCHEDULE,NOTES TO COMPUTATION OF INCOME AND COMPUTATION U/S.115JB OF THE ACT,THAT ALL MATERIAL FACTS WERE MADE AVAILABLE TO THE AO. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE,T HE AO HELD THAT MERE MENTIONING THE FACTS ABOUT BROUGHT FORWARD LOSSES DID NOT ABSOLVE IT FRO M ITS RESPONSIBILITY OF SHOWING CORRECT DEPRECIATION IN ITS RETURN OF INCOME.REFERRING TO T HE EXPLANATION 2 TO THE SECTION 147,HE STATED THAT IN THE MATTER UNDER CONSIDERATION THE ASSESSEE HAD FAILED TO DISCLOSE TRULY AND FULLY THE EFFECT OF THE UNABSORBED DEPRECIATION(UD) WHILE FILING THE RE TURN OF INCOME,THAT LOSSES CLAIMED BY THE ITA4384/MUM/2010/SCHENECTADY HERDILLIA LTD.AY.03-0 4 3 ASSESSEE WERE NOTHING BUT THE DIFFERENCE BETWEEN NE T ASSETS OF THE COMPANY AND RESERVE PLUS PAID UP VALUE OF SHARES ISSUED,THAT THE DIFFERENCE WAS T AKEN AS GOODWILL IN THE BOOKS OF ACCOUNTS,THAT THE CAPITALISATION OF THE AMOUNT IN QUESTION MADE I T INELIGIBLE FOR CLAIMING THE BENEFIT OF SECTION 115JB(2)OF THE ACT,THAT BROUGHT FORWARD UD,AMOUNTIN G TO RS.2.96 CRORES,OF THE AMALGAMATING COMPANY WAS ALLOWED IN EXCESS.HE DISALLOWED THE SAI D AMOUNT AND ADDED IT BACK TO THE COMPUTATION OF TOTAL INCOME U/S.115JB.FINALLY,HE DE TERMINED THE INCOME OF THE ASSESSEE AT RS.13.68 CRORES UNDER MAT PROVISIONS. 3. CHALLENGING THE INVOCATION OF SECTION 147 OF THE AC T,THE ASSESSEE RAISED AN ADDITIONAL GROUND OF APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA)IN THAT REGARD.IT WAS ARGUED THAT THE RE- ASSESSMENT PROCEEDINGS WERE RESULT OF CHANGE OF OP INION ONLY,THAT THE ASSESSEE HAD DISCLOSED ALL RELEVANT FACTS IN ITS RETURN OF INCOME,THAT THE RE- OPENING WAS UNJUSTIFIED, UNWARRANTED AND BAD IN LAW.THE ASSESSEE RELIED UPON JUDGMENT OF KELVINATO R OF INDIA LTD. (256 ITR1),RAO THAKUR NARAYAN SINGH (56 ITR 234),BHANJI LAVJI(79 ITR 582) ,NAWAB MIR BARKAT ALI KHAN BAHADUR (97 ITR 239),GARDEN SILK MILLS P. LTD. (222 ITR 68) AND MAHARASHTRA SUGAR MILLS LTD.(263 ITR 180). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE,T HE FAA HELD THAT THE ASSESSMENT HAD BEEN RE- OPENED FOR THE REASON THAT EXCESS DEDUCTION WAS ALL OWED TO THE ASSESSEE AMOUNTING TO RS.2,96,83,027/-, THAT IT WAS NOT LEGALLY ENTITLED TO GET THE DEDUCTION,THAT THE REASONING FOR RE- OPENING THE ASSESSMENT FELL WITHIN THE RATIO OF THE JUDGMENT OF THE HONBLE BMBAY HIGH COURT IN THE CASE OF DR.AMINS PATHOLOGY LABORATORY (252 ITR 673).HE HELD THAT THE HONBLE COURT HAD HELD THAT MERE PRODUCTION OF BALANCE SHEET OR ACCOU NTS BOOKS WOULD NOT AMOUNT TO DISCLOSURE OF MATERIAL FACTS NECESSARY FOR ASSESSMENT,THAT AFTER INTRODUCTION OF CHANGES IN SECTION 147 OF ACT W.E.F. 1.4.1989 THE SCOPE OF RE- ASSESSMENT HAD BEEN WIDENED,THAT THE ONLY RESTRICTION PUT IN THE SECTION WAS REASON TO BELIEVE,THAT REASON HAD TO BE A REASON OF A PRUDENT PERSON AND UNDER EXPLANATION 1 TO THE PROVISO MERE PRODUCTION OF THE BALANCE SHEET, P&L A/C OR ACCOUNT BOOKS WOULD NOT NECESSARILY AMOUNT TO DISCLOSURE WITHIN T HE MEANING OF THE PROVISO.DELIBERATING UPON THE FACTS OF THE CASE THE FAA HELD THAT THE AO HAD OVERLOOKED THE AFORE-STATED ITEM,THAT THE AO NOTICED THE MISTAKE SUBSEQUENTLY,THAT AT THE TIME OF PASSING THE ORIGINAL ORDER OF ASSESSMENT HE COULD NOT BE SAID TO HAVE OPINED ON THE ABOVE ITEM, THAT THERE WAS NO CHANGE OF OPINION,THAT THE AO HAD OVERLOOKED THE EXCESS DEDUCTION CLAIMED BY T HE RELATING TO UD OF RS.2,96,83,027/-. FINALLY,HE UPHELD THE RE-OPENING. 4. NEXT ISSUE IS DISALLOWANCE OF SET-OFF OF BROUGHT FO RWARD UNABSORBED DEPRECIATION(UD)OF RS. 2,96,83,027/-,THAT WAS RAISED BY THE ASSESSEE AS GR OUND NO.2.THE AO FOUND THAT THE ASSESSEE HAD CLAIMED SET OFF OF UD,AMOUNTING TO RS.2.96 CRORES,A S PER THE BOOKS OF A/CS. OF SCHENECTADY SPECIALITIES ASIA P. LTD.(SSAPL) MERGED WITH THE AS SESSEE.BEFORE THE AO THE CLAIMED THAT WHILE COMPUTING BOOK PROFIT U/S.115JB THE SAID ADJUSTMENT OF LOSSES OR UD WHICHEVER WAS LOWER,AS PROVIDED IN SECTION 115JB,HAD TO BE ALLOWED.HOWEVER ,THE AO HELD THAT . 5. AGGRIEVED BY THE ORDER OF THE AO,THE PREFERRED AN APPEAL BEFORE THE FAA BEFORE HIM THE ASSESSEE CONTENDED THAT AS PER CLAUSE 3.19 ON PAGE 15 OF THE SCHEME THE DIFFERENCE BETWEEN EXCESS OF NET ASSETS AND AGGREGATE OF RESERVES AND PAID UP CAPITAL WAS TO BE TREATED AS GOODWILL, THAT LOSSES APPEARING IN THE BALANCE SHEET OF SSAPL AS ON 26/9/2002 OF RS. 19,21,57,302/- WERE TAKEN OVER BY THE ASSESSEE AT THE TIME OF AMALGAMAT ION OF SSAPL WITH IT,THAT THE DETAILS OF YEAR- WISE BOOK LOSS INCLUDING BOOK DEPRECIATION WAS ALRE ADY REFLECTED IN THE P&L A/C OF SSAPL,THAT OUT OF THE TOTAL LOSS OF RS. 19,21,57,302/- THE DEF ERRED TAX LIABILITY OF RS. 29,85,722/- (RS. 2, 98, 56,005/-(-)RS.2,68,70,283/-)HAD BEEN EXCLUDED,THAT TOTAL BOOK LOSS (INCLUDING BOOK DEPRECIATION) OF RS. 18, 40, 17,097/- HAD BEEN CONSIDERED WHILE C OMPUTING THE BOOK PROFIT U/S 115JB OF ACT, THAT ACCOUNTS FOR THE YEAR 31/3/2003 HAD BEEN PREPA RED AS PER COMPANIES ACT,THAT AS PER COMPANIES ACT EVERY P&L A/C AND BALANCE SHEET OF TH E COMPANY WOULD COMPLY WITH THE ITA4384/MUM/2010/SCHENECTADY HERDILLIA LTD.AY.03-0 4 4 ACCOUNTING STANDARDS (AS)AS PER SUB-SECTION (3C) OF SECTION 211,THAT THE AS SPECIFIED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA WOULD BE DEEMED T O BE THE AS UNTIL THE SAME WERE PRESCRIBED BY THE CENTRAL GOVT.,THAT THE ASSESSEE HAD FOLLOWED AS-10,AS-14 AND AS-26 RELATING TO METHOD FOR ACCOUNTING OF GOODWILL,THAT TREATMENT GIVEN BY THE ASSESSEE WITH REGARD TO AMALGAMATION AND ACCOUNTING FOR INTANGIBLE ASSETS VIS--VIS THE GOOD WILL WAS AS PER LAW.IT WAS FURTHER ARGUED THAT THE AO WAS WRONG IN STATING THAT THE DIFFERENCE TAK EN AS GOODWILL IN THE COMPANYS ACCOUNT WAS NOT ELIGIBLE FOR CLAIMING THE BENEFIT OF SECTION 11 5JB(2)OF THE ACT,THAT THE AO WAS LEGALLY WRONG IN HOLDING THAT BROUGHT FORWARD UD OF THE AMALGAMAT ING COMPANY AMOUNTING OT RS.2,96,83,027/- WAS IN EXCESS AND HAD TO BE DISALLOWED.IT WAS STATE D THAT THE AMOUNT OF RS. 2,96,83,207/- REPRESENTED THE LOWER OF BROUGHT FORWARD LOSS OR DE PRECIATION OF SSAP LTD., UNDER GOODWILL ACCOUNT. THE ASSESSEE RELIED UPON THE DECISION OF ITAT, C BENCH, BANGALORE IN THE CASE OF M/S VST & TRACTORS LTD .(ITA NO588/BANG/2008 AY. 2 003-04 DT. 21/11/2008)IN THIS REGARD. 6. AFTER CONSIDERING THE ASSESSMENT ORDER AND THE SUBM ISSIONS OF THE ASSESSEE,THE FAA HELD THAT THE ASSESSEE HAD REDUCED UNABSORBED LOSS OF 15.43 C RORES OR UD OF RS. 2.96 CRORES WHICHEVER WAS LOWER AS AVAILABLE IN THE BOOKS OF THE TRANSFER OR COMPANY UPTO 31.3.2002,WHILE COMPUTING THE BOOK PROFIT U/S.115JB,THAT IN THE SCHEME OF MER GER SAID LOSSES/ UD INCLUDING LOSS INCURRED FOR THE PERIOD FROM 1.4.2002 TO 26.9.2002 AGGREGATING T O RS. 19.21 CRORES HAD BEEN CAPITALISED,THAT THE DIFFERENCE BETWEEN THE ACCUMULATED LOSSES AND F RESH CAPITAL ISSUED BY THE ASSESSEE-COMPANY WAS CAPITALISED,THAT IT WAS TREATED AS GOODWILL IN THE BOOKS OF THE ,THAT SAME GOODWILL WAS AMORTISED EQUALLY OVER A PERIOD OF 60 MONTHS IN THE BOOKS OF THE ACCOUNTS,THAT WHILE COMPUTING BOOK PROFIT U/S.115JB OF THE ACT THE ASSESSEE HAD C LAIMED BENEFIT OF LOSSES BROUGHT FORWARD AGGREGATING TO RS. 15.43 CRORES OR UNABSORBED DEPRE CIATION OF RS. 2.96 CRORES IGNORING THE FACT THAT THE DIFFERENCE BETWEEN THE LOSS AND VALUE OF S HARE CAPITAL ISSUED HAD ALREADY BEEN CAPITALISED AND HAD BEEN CONSIDERED AS GOODWILL.HE FURTHER HELD THAT IF DEDUCTION FOR LOSS AS CLAIMED BY THE ASSESSEE WHILE COMPUTING BOOK PROFIT U/S.115JB WAS ALLOWED IT WOULD RESULT INTO DOUBLE BENEFIT TO THE ONCE IN THE A.Y. 2003-04 AND AGAIN IN SUBSEQUE NT YEARS WHEN THE SAID GOODWILL WAS TO BE WRITTEN OFF OVER THE PERIOD OF 60 MONTHS IN THE BOO KS OF ACCOUNTS,THAT THE ASSESSEE ITSELF HAD ADJUSTED THE EARLIER YEARS LOSS AGAINST RESERVES O R GOODWILL AND ITS DISCONTINUANCE IN THE PREVIOUS YEAR 2002-03 CLEARLY MADE IT INELIGIBLE FOR CLAIMIN G THE BENEFIT OF SECTION 115JB AS IT HAD BEEN CAPITALISED. 7. BEFORE US,AUTHORISED REPRESENTATIVE(AR)ARGUED THAT THE ASSESSEE HAD DISCLOSED ALL THE FACTS RELATED WITH UD AND ACCOUNTING POLICY FOLLOWED BY T HE IT DURING THE COURSE OF ORIGINAL ASSESS - MENT,THAT THE AO HAD DECIDED THE ISSUE AFTER CONSID ERING THE AVAILABLE MATERIAL ON RECORD, THAT RE- OPENING WAS RESULT OF CHANGE OF OPINION.HE REFERRED TO PAGES NO.50,61,62,128,132 OF THE PAPER BOOK(PB). HE RELIED UPON THE CASES OF PURITY TECHT EXTILES(P.)LTD. (189TAXMAN21), KELVINATOR OF INDIA LTD.(320 ITR561).DEPARTMENTAL REPRESENTATIVE( DR)SUPPORTED THE ORDER OF THE FAA.HE RELIED UPON THE CASE OF APPOLLO HOSPITALS ENTERPRIS ES LTD.(171TAXMAN397)OF HONBLE MADRAS HIGH COURT. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT ORIGINAL ASSESSMENT ORDER WAS PASSED ON 30.11.2005,U/S.143(3 )OF THE ACT,THAT WHILE COMPUTING PROFIT U/S. 115JB OF THE ACT THE ASSESSEE HAD REDUCED UNABSORB ED LOSS OF 15.43 CRORES OR UD OF RS. 2.96 CRORES,WHICHEVER WAS LOWER,AS AVAILABLE IN THE BOOK S OF THE TRANSFEROR COMPANY UPTO 31.03. 2002,THAT IN THE SCHEME OF MERGER SAID LOSSES/ UD I NCLUDING LOSS INCURRED FOR THE PERIOD FROM 01. 04.2002 TO 26.9.2002 AGGREGATING TO RS.19.21 CRORES HAD BEEN CAPITALISED.IN OTHER WORDS,THE ASSESSEE HAD CAPITALISED THE DIFFERENCE BETWEEN THE ACCUMULATED LOSSES AND FRESH CAPITAL ISSUED BY IT.NOT ONLY THIS THE DIFFERENCE WAS TREATED AS GOOD WILL AND THE GOODWILL WAS AMORTISED EQUALLY OVER A PERIOD OF 60 MONTHS IN THE BOOKS OF THE ACCO UNTS OF THE ASSESSEE.THE AO ALLOWED THE CLAIM MADE BY IT WITHOUT CONSIDERING THE ABOVE FACTS.ON A SPECIFIC QUERY BY THE BENCH THE AR ADMITTED THAT THE GOODWILL WAS AMORTISED AND THAT THE DIFFER ENCE OF LOSS AND FRESH CAPITAL WAS CAPITALISED IN ITA4384/MUM/2010/SCHENECTADY HERDILLIA LTD.AY.03-0 4 5 THE BOOKS.IT WAS A CLEAR CASE OF CLAIMING DOUBLE DE DUCTION.CONSIDERING THE FACTS THAT THE DIFFERENCE BETWEEN THE ACCUMULATED LOSSES AS ON 26. 9.2002 [OF RS. 19.21 CRORES LESS VALUE OF SHARE CAPITAL OF SSAPL OF 11.50 CRORES (REPRESENTIN G SHARE CAPITAL EXTINGUISHED OF SSAPL)],CAPITALISATION OF FRESH CAPITAL, AGGREGATIN G TO RS. 8.86 CRORES AND TREATMENT OF GOODWILL IN THE BOOKS OF THE ASSESSEE,WE ARE OF THE OPINION THAT THE FAA WAS JUSTIFIED IN UPHOLDING THE REASSESSMENT. IT IS SAID THAT DOUBLE TAXATION/DOUBLE DEDUCTION IS NOT PERMISSIBLE UNDER THE ACT.IN THE CASE UNDER CONSIDERATION THE ASSESSEE HAD CLAIMED THE AMOUNT O F RS.2.96 CRORES AS GOODWILL AND HAD AMORTISED IT IN THE BOOKS OF ACCOUNTS.IN ADDITION T O IT,THE ASSESSEE WANTED IT TO THE PART OF UNABSORBED LOSSES TO BE CARRIED FORWARD.CLEARLY,IT IS NOT PERMISSIBLE AS PER THE PROVISIONS OF THE ACT.IN SHORT,THE ASSESSEE SHOULD NOT HAVE REDUCED T HE UD IN THE COMPUTATION OF BOOK PROFITS U/S.115 JB OF THE ACT.IN OUR OPINION,EVEN IF THE AO WHILE PASSING ORDER U/S.143(3)HAD ALLOWED AN IMPERMISSIBLE DEDUCTION,IT WOULD NOT BAR HIM FROM I NITIATING PROCEEDINGS U/S.147 OF THE ACT. THE PURPOSE BEHIND THE SECTION IS TO COMPUTE THE INCOME THAT HAS ESCAPED ASSESSMENT.IN THE CASE UNDER CONSIDERATION BROUGHT FORWARD UD OF SSAPL,AMO UNTING TO RS.2,96,83,027/-WAS ALLOWED IN EXCESS DURING THE ORIGINAL ASSESSMENT PROCEEDINGS.S O,IF THE AO INITIATED RE-ASSESSMENT PROCEE - DINGS TO WITHDRAW THE EXCESS ALLOWANCE,NO FAULT CAN BE FOUND WITH HIM. AS FAR AS THE CASES RELIED UPON BY THE ASSESSEE ARE CONCERNED WE WANT TO MAKE IT CLEAR THAT THEY LAY DOWN THE GENERAL PRINCIPLES ABOUT REOPENING OF COMPLETED ASSESSMENT.BUT,THE FACTS OF THE THOSE CASES ARE ENTIRELY DIFFERENT FROM THE FACTS O F THE PRESENT CASE.IN THE MATTER OF PURITY TECHTEXTILES (P.)LTD.(SUPRA)THE HONBLE HIGH COURT HAD FOUND THAT THERE WAS NO TANGIBLE MATERIAL WITH THE AO FOR ISSUING NOTICE U/S.148 OF THE ACT.B UT,IN THE CASE BEFORE US,THE AO HAD ALLOWED DEDUCTION FOR WHICH THE ASSESSEE WAS NOT ENTITLED.I N KELVINATOR OF INDIA(SUPRA)THE HONBLE APEX COURT HAS HELD THAT THE AO HAS POWER OF REOPEN AN A SSESSMENT PROVIDED THERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT AND THAT REASONS MUST HAVE LINK WITH THE FORMATION OF THE BELIEF.WE FIND THAT IN THE CASE BEFORE US,THERE WAS TANGIBLE MATERIAL BEFORE THE AO,AS THE ASSESSEE HAS REDUCED THE UD IN COMPUTATION OF BOOK PROFIT AGAINST THE CLEAR INTENT OF THE LEGISLATURE.THEREFO RE,IN OUR OPINION CASES RELIED UPON BY THE ASSESSEE ARE OF NO HELP.WE FIND THAT THE MATTER REL IED UPON BY THE DR,SUPPORTS THE STAND TAKEN BY THE FAA.CONSIDERING THE ABOVE,WE ARE OF THE OPINION THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY.SO,CONFIRMING I T,WE DECIDE GROUND NO.1 & 2 AGAINST THE ASSESSEE. 9. AS FAR AS ADDITIONAL GROUND IS CONCERNED,WE FIND TH AT THE AO OR THE FAA HAD NO OCCASION TO DELIBERATE UPON IT.AS HELD EARLIER,IT IS A PURELY L EGAL GROUND.SO,IN THE INTEREST OF JUSTICE,WE ARE REMITTING BACK THE ADDITIONAL GROUND RAISED BY THE ASSESSEE TO THE FILE OF THE AO FOR FRESH ADJUDICATION. HE IS DIRECTED TO AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. ADDITIONAL GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE,IN PART. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS PAR TLY ALLOWED. ( 9 '() + 8): ; + ) <=. ORDER PRONOUNCED IN THE OPEN COURT ON 16TH, JANUARY,2015 . 8 + -.# ? @' 16 TUOJH TUOJH TUOJH TUOJH , 201 5 . + 7 A SD/- SD/- ( / VIJAY PAL RAO) ( ! ! ! ! / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, @' /DATE: 16.01 . 2015. ITA4384/MUM/2010/SCHENECTADY HERDILLIA LTD.AY.03-0 4 6 SK 8 8 8 8 + ++ + &) &) &) &) B #) B #) B #) B #) / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / $% 2. RESPONDENT / &'$% 3. THE CONCERNED CIT(A)/ C D , 4. THE CONCERNED CIT / C D 5. DR G BENCH, ITAT, MUMBAI / E7 &)' TH THTH TH , . . . 6. GUARD FILE/ 7 F ') ') ') ') &) &)&) &) //TRUE COPY// 8' / BY ORDER, G / < DY./ASST. REGISTRAR , /ITAT, MUMBAI