GAGAN TRADING CO. LTD, MUMBAI V. ITO 5(1)(2), MUMBAI

ITA 4538/MUM/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5187 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2007-2008
• Appeal Filed On: 01-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Principle of natural justice; Retrospective amendment; Cost of acquisition; Tangible material; Notional interest; Reassessment proceedings
• Section: 143(3); 115JB; 143(1); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NOS.4538 & 4539/M/2016 ASSESSMENT YEARS: 2007-08 & 2009-10 M/S. GAGAN TRADING CO. LTD., JINDAL MANSION, 5A, DR. G. DESHMUKH MARG, MUMBAI 400 026 PAN: AAACG1829Q VS. INCOME TAX OFFICER 5(1)(2), MUMBAI (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI HIRO RAI, A.R. REVENUE BY : SHRI MANOJ KUMAR SINGH, D.R. DATE OF HEARING : 24.12.2018 DATE OF PRONOUNCEMENT : 05.02.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE ABOVE TITLED TWO APPEALS HAVE BEEN PREFERRED B Y THE ASSESSEE AGAINST THE ORDER DATED 15.03.2016 & 18.03 .2016 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFT ER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT YEAR 2007- 08 & 2009-10 RESPECTIVELY. ITA NO.4538/M/2016 (A.Y. 2007-08) 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) (HEREINAFTER REFERRED TO AS 'THE LD. CIT(A)') ERRED IN CONFIRMING THE ASSUMPTION OF JURISDICTION U/S 148 BY THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS 'AO') WHICH WAS INHERENTLY BAD IN LAW. 2. THE LD. CIT(A) ERRED IN NOT FOLLOWING THE PRIN CIPLES OF NATURAL JUSTICE BY PASSING AN ORDER WITHOUT EVEN CONSIDERING THE SUBMISSIONS AND ARGUMENTS MADE BY THE APPELLANT DURING COURSE OF APPELLATE PROCEEDINGS. ITA NOS.4538 & 4539/M/2016 M/S. GAGAN TRADING CO. LTD. 2 3. THE LD. CIT(A) ERRED IN NOT APPRECIATING THE F ACT THAT THE AO HAD NO TANGIBLE 'FNATERIAL AVAILABLE WHICH COULD LEAD TO A BELIEF THAT INCOME HA D ESCAPED ASSESSMENT AND THE AO HAD FRAMED HIS OPINION AGAINST THE SETTLED POSITION OF LAW IN APPELLANT'S OWN CASE. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W, THE LD. CIT(A) ERRED IN UPHOLDING THE ADDITION AMOUNTING TO RS.40,99,900/- MADE BY THE AO IN COMPUTATION OF BOOK PROFIT U/S 115JB IN RESPECT OF PROVISION FOR DIMINUTION IN THE VA LUE OF INVESTMENTS, WITHOUT APPRECIATING THE FACT THAT THE ADDITIONS MADE BY THE AO ON THE GRO UNDS ON WHICH THE CASE WAS REOPENED WERE DELETED AND HENCE, NO OTHER ADDITION/DISALLOWAN CE MADE DURING THE RE-ASSESSMENT PROCEEDINGS COULD SURVIVE. 5. THE APPELLANT CRAVES LEAVE TO ADD TO AND/OR AMEND, MODIFY OR WITHDRAW THE GROUNDS OUTLINED ABOVE BEFORE OR AT THE TIME OF HEARING OF T HE APPEAL. 3. THE ISSUE RAISED IN GROUND NO.1 TO 3 BEING TEC HNICAL AND LEGAL CHALLENGING THE CONFIRMATION OF REOPENING OF ASSESSMENT UNDER SECTION 147 READ WITH SECTION 148 WHEREAS IN GROUND NO.4 ASSESSEE HAS CHALLENGED THE ADDITION ON THE GROUND THAT WHEN THE ADDITIONS MADE BY THE AO ON THE BASIS OF REASON RECORDED UNDER SECTION 148(2) WERE DELETED, THEN THE OTHER ADDITIONS/DISALLOWANCES WHICH WERE NOT SUBJECT MATT ER OF THE REASONS RECORDED BY THE AO COULD NOT SURVIVE. 4. WE WOULD LIKE TO ADJUDICATE THE ISSUE RAISED IN GROUND NO.4. 5. THE FACTS IN BRIEF ARE THAT THE ASSESSEE FILED T HE RETURN OF INCOME ON 16.10.2007 DECLARING AN INCOME OF RS.7,57 ,893/- AND PAID TAX UNDER MAT WHICH WAS MORE THAN THE TAX DUE UNDER THE NORMAL PROVISIONS OF THE ACT. SUBSEQUENTLY, THE CA SE OF THE ASSESSEE WAS REOPENED ON THE BASIS OF REASONS RECOR DED BY THE AO THAT INCOME OF THE ASSESSEE HAS ESCAPED ASSESSME NT AND NOTICE UNDER SECTION 148 WAS ISSUED ON 12.03.2013 W HICH WAS SERVED UPON THE ASSESSEE ON 14.03.2012. THE REASON S RECORDED ARE AS UNDER: THE ASSESSEE COMPANY, GAGAN TRADING CO. LTD. FILED ITS RETURN OF INCOME ON 16.10.2007 AND DECLARED TOTAL INCOME OF RS. 7,57,89 5/- WHICH WAS PROCESSED U/S 143(1) ON 30.01.2009 AND REFUND OF RS.7,65,397- WAS DETERMINED. HOWEVER, THE CASE WAS NOT SELECTED FOR SCRUTINY FOR A.Y. 2007-08 . ITA NOS.4538 & 4539/M/2016 M/S. GAGAN TRADING CO. LTD. 3 IN THIS REGARD, IN EARLIER YEARS, THE ASSESSEE HAS TAKEN INTEREST FREE DEPOSIT OF RS.78,00,00,000/- FROM THE RENTERS HAVING PROVIDED ACCOMMODATION AT NOMINAL RENT NEITHER ON THE MARKET VALUE NOR ON MUNICIPAL VALUE. IN EARLIER YEARS AS WED AS SUBSEQUENT YEARS, EXCEPT FOR THE YEAR A.Y. 2007-08, THE CASE WAS SELECTED FOR THE SCRUTINY U/S 143(3) AND THE A.O. COMPUTED THE HOUSE PROPERTY INCOME HAVING MADE ADDITION OF INTEREST @ 18% ON DEPOSIT OF RS.78,00,0 0,000/- UNDER THE HEAD HOUSE PROPERTY INCOME ON CONSISTENT BASIS FOR DETERMINING THE ANNUAL LET-OUT VALUE. SUBSEQUENTLY, THE ASSESSEE FILED APPEAL BEFORE CIT( A). THE LD. CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE EXCEPT IN A. Y. 2006-07. IN A, Y. 2006-07, CTT(A) DIRECTED THE AO TO COMPUTE THE ANNUAL LET-OUT VALUE @ RS, 59/- P ER SQ.FT. AND FURTHER 10% INCREASE ON COMPOUNDED BASIS ANNUALLY. EVEN THOUGH, THE DEPARTMENT DID NOT ACCEPT THE DIRECTION OF CTT(A) AND APPEAL WAS FILED BEFORE THE HON'BLE ITAT. THE HON'BLE ITAT ALSO DISMISSED THE APPEAL. NOW, THE DE PARTMENT IS IN APPEAL BEFORE THE HON'BLE BOMBAY HIGH COURT RELYING ON THE JUDGEM ENT OF HON'BLE APEX COURT IN THE CASE OF DIRECTOR OF INCOME TAX VS TRANSMARINE C ORP., WHEREIN THE HON'BLE SUPREME COURT HAS SET ASIDE THE ORDER OF HE HIGH CO URT, FOR DENOVO CONSIDERATION OF THE ISSUE, ON THE FOLLOWING POINTS: (A) WHETHER RENT WAS UNDERSTATED? (B) WHETHER RENT WAS BROUGHT DOWN BY INTEREST FREE DEPO SIT BANK GUARANTEES, ETC? (C) WHETHER THE ENTIRE ARRANGEMENT STOOD ENTERED TO EVA DE TAXES? WHETHER THE ARRANGEMENT WAS A SHAM? THEREFORE, I HAVE REASONS TO BELIEVE THAT INCOME OF RS.14,00,00,000/- OF HOUSE PROPERTY INCOME HAS ESCAPED ASSESSMENT AND INCOME E SCAPING ASSESSMENT IS REQUIRED TO BE RE-ASSESSED U/S 147 BY ISSUE OF NOTI CE U/S 148'. 6. THUS IN THE REASONS RECORDED THE CASE OF THE ASS ESSEE WAS REOPENED ON THE GROUND THAT INTEREST FREE DEPOSIT RS.78,00,00,000/- HAS NOT BEEN TAKEN INTO ACCOUNT W HILE DETERMINING THE ALV OF THE PROPERTY. THEREFORE, TH E ASSESSEE CAME TO THE CONCLUSION THAT RS.14,00,00,000/- HAS E SCAPED ASSESSMENT. WHILE FRAMING THE ASSESSMENT THE AO MA DE TWO ADDITIONS NAMELY (I) NOTIONAL INTEREST ON DEPOSIT O F RS.78,00,00,000/- AT THE RATE OF 18% THEREBY TAKING THE NOTIONAL INTEREST AT RS.14,04,00,000/- WHICH WAS ADDED TO TH E GROSS ANNUAL VALUE AND INCOME FROM THE PROPERTY WAS ASCE RTAINED AT RS.9,84,58,080/- AND (II) SECONDLY PROVISION IN THE DIMINUTION OF VALUE OF INVESTMENTS OF RS.40,99,900/- WHILE COMPUT ING BOOK PROFIT UNDER SECTION 115JB AND THUS FRAMED ASSESSME NT UNDER ITA NOS.4538 & 4539/M/2016 M/S. GAGAN TRADING CO. LTD. 4 SECTION 143(3) READ WITH SECTION 147 OF THE ACT VID E ORDER DATED 29.03.2014. 7. THE LD. CIT(A) ALLOWED THE APPEAL OF THE ASSESSE E ON THE ISSUE OF ADDITION OF NOTIONAL INTEREST WHILE DETERM INING THE INCOME FROM HOUSE PROPERTY BY FOLLOWING THE DECISIO N OF THE PREDECESSOR OF CIT(A) AND ITAT IN EARLIER YEARS IN WHICH THE ISSUE STANDS ADJUDICATED BY BOTH THE FORUMS IN FAVO UR OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER: 5.2 SIMILAR ISSUE WAS DECIDED BY THE CIT(A) AND TH E ITAT IN FAVOUR OF THE ASSESSEE FOR EARLIER YEARS. ON APPEAL BEFORE THE H ONBLE HIGH COURT OF MUMBAI BY THE REVENUE, THE HIGH COURT HAS DISMISSED THE APPEA L OF THE REVENUE. KEEPING THESE FACTS IN VIEW MY LEARNED PREDECESSOR WHILE PA SSING HIS ORDER FOR SUBSEQUENT ASSESSMENT YEAR I.E. A.Y. 2010-11 DATED 26/08/2014 HAS ALLOWED THE RELIEF TO THE APPELLANT. RESPECTFULLY FOLLOWING THE DECISION OF MY LEARNED PREDECESSOR, THE GROUND IS ALLOWED FOR THIS YEAR ALSO. WHILE THE APPEAL ON THE SECOND ISSUE OF ADDITION OF RS.40,99,900/- BEING PROVISION FOR DIMINUTION IN VA LUE OF ASSESSMENT WAS DISMISSED BY OBSERVING AND HOLDING A S UNDER: 7.2. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE ID.AR. IN MY CONSIDERED OPINION, EVEN THOUGH THE CL AUSE (I) [AFTER CLAUSE (H)] OF EXPLANATION 1 TO SEC.115JB WAS INSERTED BY FINANCE ACT, 2009 W.E.F.01/04/2001, IT IS CLARIFICATORY IN NATURE AND APPLICABLE RETROSPECTIV ELY. THEREFORE, I HOLD THAT THE DISALLOWANCE MADE BY THE AO IS IN ORDER. THE GROUND IS DISMISSED. 8. NOW THE ASSESSEE IS IN APPEAL BEFORE US CHALLENG ING THE ORDER OF CIT(A) ON THE GROUND THAT WHEN THE ADDITI ON AS WAS SUBJECT MATTER OF THE REASONS BY THE AO U/S 148(2 ) WAS DELETED ,THEN THE OTHER ADDITION WHICH ONLY CAME TO THE NOT ICE OF THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS WOULD AUTOMATICALLY GO AS THE VERY BASIS OF THE REASSESSM ENT PROCEEDING IS GONE . THE LD. A.R. VEHEMENTLY SUBMI TTED BEFORE US THAT SINCE THE ISSUE OF ADDITION OF NOTIONAL INT EREST HAS BEEN DELETED BY THE FIRST APPELLATE AUTHORITY IN FAVOUR OF THE ASSESSEE ITA NOS.4538 & 4539/M/2016 M/S. GAGAN TRADING CO. LTD. 5 THE OTHER ADDITION ON THE BASIS OF MATERIAL WHICH C AME TO THE NOTICE OF THE AO DURING THE COURSE OF REASSESSMENT PROCEEDINGS WOULD AUTOMATICALLY GO. THE LD. A.R. IN DEFENCE OF HIS ARGUMENTS RELIED HEAVILY ON THE FOLLOWING DECISIONS : 1. 331 ITR 236 (BOM) CIT V. JET AIRWAYS (I) LTD. 2. 214 TAXMAN 47 (BOM) (MAG) CIT V DOUBLE DOT FINANCE LTD. 3. 349 ITR 482 (BOM) CIT V ICICI BANK LTD. 4. 359 ITR 106 (DEL) CIT V LIVING MEDIA INDIA LTD. 5. 63 DTR 212 (DEL) CIT V ADHUNIK NIRYAT ISPAT LTD . 6. 158 ITD 878 (MUM) TRAVOTEL (INDIA) P LTD. V ITO 7. 62 SOT 146 (AGRA) (URO) ASHA KANSAL V ITO 8. 174 TTJ 888 (ASR) JOGINDER SINGH V ITO 9. THE LD. A.R. SUBMITTED THAT THE CASE OF THE ASSE SSEE IS SQUARELY COVERED BY THE DECISIONS REFERRED TO FROM SL. NO.4 TO 8 ABOVE WHEREIN UNDER THE IDENTICAL CIRCUMSTANCES WHE RE THE ADDITION WHICH WAS REFERRED TO IN REASONS RECORDED UNDER SECTION 148(2) WAS DELETED BY THE APPELLATE AUTHORI TY AND THE OTHER ADDITION WHICH WAS NOT REFERRED TO THE REASON S RECORDED UNDER SECTION 148 WAS ORDERED TO BE DELETED ON THE GROUND THAT ONCE THE ADDITION AS REFERRED TO BE IN THE REASONS RECORDED IS DELETED, THE SECOND ADDITION WOULD NOT SURVIVE. TH E LD. A.R. FINALLY PRAYED BEFORE THE BENCH THAT THE ISSUE BEIN G SQUARELY COVERED BY THE DECISION BY THE VARIOUS FORUMS AS ST ATED ABOVE, THE ADDITION OF RS.40,99,900/- MUST BE DIRECTED TO BE DELETED. 10. THE LD. D.R. RELIED ON THE GROUNDS OF APPEAL AN D ORDER OF LD. CIT(A). THE LD. D.R. SUBMITTED THAT THE CASE O F THE ASSESSEE IS SQUARELY COVERED BY THE EXPLANATION 3 TO SECTION 147 OF THE ACT WHICH WAS INSERTED BY THE FINANCE (NO.2) ACT, 2 009 W.E.F. APRIL 1 ST , 1989 WHICH CLEARLY PROVIDES THAT WHERE THE REASON S FOR REOPENING UNDER SECTION 148 DOES NOT CONTAIN A REFE RENCE TO A ITA NOS.4538 & 4539/M/2016 M/S. GAGAN TRADING CO. LTD. 6 PARTICULAR INCOME WHICH HAS ESCAPED ASSESSMENT THEN THE AO MAY ASSESSEE OR RE-ASSESS THE INCOME IN RESPECT OF SUCH INCOME WHICH HAS ESCAPED ASSESSMENT WHEN SUCH INCOME COME TO THE NOTICE SUBSEQUENTLY, IN THE COURSE OF ASSESSMENT PR OCEEDINGS. 11. IN THE REBUTTAL, THE LD. A.R. SUBMITTED BEFORE THE BENCH THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF C IT VS. JET AIRWAYS (I) LTD. 331 ITR 236 (SUPRA) HAS THE OCCASI ON TO EXAMINE THE EXPLANATION 3 TO SECTION 147 OF THE ACT AND IT WAS CLEARLY HELD THAT AN EXPLANATION TO STATUTORY PROVI SION IS INTENDED TO EXPLAIN THE CONTENTS OF THIS SECTION AN D CAN NOT BE CONSTRUED TO OVER WRITE IT AND RENDER SUBSTANCE AND CORE NUGATORY. THE LD AR, THUS REITERATING HIS ARGUMENT S PRAYED THAT THE ADDITION SO CONFIRMED BY THE LD CIT(A) MAY BE D ELETED. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD INCLUDING THE DECISIONS CITED BY THE LD. A.R. AND EXPLANATION 3 TO SECTION 147 AS REFERRED TO BY THE LD. D.R. THE UNDISPUTED FACTS ARE THAT THE AO REOPENED THE C ASE OF THE ASSESSEE ON THE GROUND THAT NOTIONAL INTEREST ON TH E INTEREST FREE DEPOSIT OF RS.78 CRORE WAS NOT CONSIDERED WHILE CAL CULATING THE HOUSE PROPERTY INCOME AND THIS WAS ONLY THE SOLE RE ASON FOR REOPENING THE ASSESSMENT OF THE ASSESSEE. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, THE AO MADE TWO ADDITIONS ONE AS QUA WHICH THE REFERENCE WAS MADE IN THE REASONS REC ORDED UNDER SECTION 148 I.E. NOTIONAL INTEREST ON INTERES T FREE DEPOSIT AND SECOND OF RS.40,99,900/- QUA PROVISION FOR D IMINUTION IN THE VALUE OF INVESTMENTS. NOW THE ISSUE BEFORE US WHETHER THE SECOND ADDITION OF RS.40,99,900/- SURVIVES WHEN THE MAIN ADDITION AS REFERRED TO IN THE REASONS RECORDED UND ER SECTION ITA NOS.4538 & 4539/M/2016 M/S. GAGAN TRADING CO. LTD. 7 148 WAS DELETED BY THE LD. CIT(A). WE HAVE ALSO CO NSIDERED THE EXPLANATION 3 TO SECTION 147 ON WHICH THE LD. D.R. RELIED HEAVILY STATING THAT THE AO IS AT LIBERTY TO ASSESS THE INC OME QUA WHICH THERE IS NO REFERENCE IN THE REASONS RECORDED UNDER SECTION 148 DURING THE COURSE OF RE-ASSESSMENT PROCEEDINGS IF T HE SAME COMES TO HIS NOTICE DURING THE REASSESSMENT PROCEED INGS. AFTER PERUSING THE FACTS ON RECORD AND THE RATIO LAID DOW N BY THE VARIOUS DECISIONS AS REFERRED TO ABOVE WE ARE OF TH E CONSIDERED VIEW THAT WHEN THE ADDITION AS REFERRED TO IN THE R EASONS RECORDED UNDER SECTION 148 IS DELETED THE OTHER ADD ITION WHICH IS NOT SUBJECT MATTER OF THE REASONS RECORDED UNDER SECTION 148 WOULD NOT SURVIVE AND HAS TO BE DELETED. IN THE CA SE OF CIT VS. LIVING MEDIA INDIA LTD. (SUPRA) THE HONBLE DELHI H IGH COURT HAS HELD THAT WHEN THE ADDITION ON THE BASIS OF WHICH T HE REASSESSMENT PROCEEDINGS WERE INITIATED WAS DELETED BY THE LD. CIT(A) WHILE UPHOLDING THE ISSUANCE OF NOTICE UNDER SECTION 148 AND PROCEEDING UNDER SECTION 147 OF THE ACT AND ALS O CONFIRMING THE ADDITION ON ACCOUNT OF OTHER ISSUE NOT HAVING ANY REFERENCE IN THE REASONS RECORDED UNDER SECTION 148 OF THE ACT AND THE APPEAL WAS NOT CONCERNED WITH THE ORIGI NAL ISSUE AS WAS SUBJECT MATTER OF THE REASONS RECORDED BY THE A O. THE HONBLE HIGH COURT IN THIS BACKGROUND HELD THAT UN TIL AND UNLESS THERE WAS AN ADDITION BASED UPON THE REASON RECORDED BY THE AO, NO OTHER ADDITION CAN BE MADE IN VIEW OF TH E EXPRESSION AND ALSO USED IN EXPLANATION 3 TO SECTION 147 OF THE ACT. 13. IN THE CASE OF CIT VS. ADHUNIK NIRYAT ISPAT LTD . (SUPRA) THE HIGH COURT HAS HELD THAT ONCE THE REASONS ON THE BA SIS ON WHICH THE AO REOPENED THE ASSESSMENT WERE FOUND VAL ID AND ADDITION WAS ULTIMATELY DELETED AS REFERRED TO IN R EASONS ITA NOS.4538 & 4539/M/2016 M/S. GAGAN TRADING CO. LTD. 8 RECORDED ,THE OTHER ITEMS OF ADDITIONS WHICH WERE N OT PART OF REASONS CAN NOT BE MADE. SIMILARLY, THE CO-ORDINA TE BENCH OF THE TRIBUNAL IN THE CASE OF TRAVOTEL (INDIA) P LTD. VS. ITO (SUPRA) HAS HELD AS UNDER: NOW COMING TO THE VARIOUS OTHER ADDITIONS MADE BY THE AO, IT IS APPARENT FROM THE RECORDS THAT NOWHERE IN THE 'REASONS RECORDED', THE AO HAS RECORDED HIS REASONS TO BELIEVE' ON SUCH ISSUES/ADDITIONS AND T HEREFORE, IN VIEW OF THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF JET AIRWAYS (SUPRA) THE AO CANNOT ROPE IN ANY OTHER ADDITIONS, ESPECIALLY WHEN THE MAIN GR OUND FOR RESPONDING ITSELF HAS BEEN DECLARED INVALID/BAD IN LAW (OR IS NOT MADE IN THE ASSESSMENT OR STANDS DELETED FINALLY). THUS, WITHOUT RECORDING THE REASO NS ON THE ISSUES, NO ADDITION CAN BE MADE IN SUCH CIRCUMSTANCES. THE RELEVANT OBSERVA TION OF HON'BLE HIGH COURT AFTER ANALYZING EXPLANATION 3 TO SECTION 147 BROUGH T BY THE FINANCE ACT, 2009 WITH RETROSPECTIVE EFFECT FROM 01.04.1989 AND ALSO THE R ELEVANT PROVISION OF SECTION 147 READS AS UNDER: 16 EXPLANATION 3 LIFTS THE EMBARGO, WHICH WAS INSE RTED BY JUDICIAL INTERPRETATION, ON THE MAKING OF AN ASSESSMENT OR REASSESSMENT ON G ROUNDS OTHER THAN THOSE ON THE BASIS OF WHICH A NOTICE WAS ISSUED UNDER SECTIO N 148 SETTING OUT THE REASONS FOR THE BELIEF THAT INCOME HAD ESCAPED ASSESSMENT. THOS E JUDICIAL DECISIONS HAD HELD THAT WHEN THE ASSESSMENT WAS SOUGHT TO BE REOPENED ON THE GROUND THAT INCOME HAD ESCAPED ASSESSMENT ON A CERTAIN ISSUE, THE ASSE SSING OFFICER COULD NOT MAKE AN ASSESSMENT OR REASSESSMENT ON ANOTHER ISSUE WHICH C AME TO HIS NOTICE DURING THE PROCEEDINGS. THIS INTERPRETATION WILL NO LONGER HOL D THE FIELD AFTER THE INSERTION OF EXPLANATION 3 BY THE FINANCE ACT (NO. 2) OF 2009. H OWEVER, EXPLANATION 3 DOES NOT AND CANNOT OVERRIDE THE NECESSITY OF FULFILLING THE CONDITIONS SET OUT IN THE SUBSTAN- TIVE PART OF SECTION 147. AN EXPLANATION TO A STATU TORY PROVISION IS INTENDED TO EXPLAIN ITS CONTENTS AND CANNOT BE CONSTRUED TO OVE RRIDE IT OR RENDER THE SUBSTANCE AND CORE NUGATORY. SECTION 147 HAS THIS EFFECT THAT THE ASSESSING OFFICER HAS TO ASSESS OR REASSESS THE INCOME ('SUCH INCOME') WHICH ESCAPED ASSESSMENT AND WHICH WAS THE BASIS OF THE FORMATION OF BELIEF AND IF HE DOES SO, HE CAN ALSO ASSESS OR REASSESS ANY OTHER INCOME WHICH HAS ESCAPED ASSE SSMENT AND WHICH, COMES TO HIS NOTICE DURING THE COURSE OF THE PROCEEDINGS. HO WEVER, IF AFTER ISSUING A NOTICE UNDER SECTION 148, HE ACCEPTED THE CONTENTION OF TH E ASSESSEE AND HOLDS THAT THE INCOME WHICH HE HAS INITIALLY FORMED A REASON TO BE LIEVE HAD ESCAPED ASSESSMENT, HAS AS A MATTER OF FACT NOT ESCAPED ASSESSMENT, IT IS NOT OPEN TO HIM INDEPENDENTLY TO ASSESS SOME OTHER INCOME. IF THE INTENDS TO DO S O, A FRESH NOTICE UNDER SECTION 148 WOULD BE NECESSARY, THE LEGALITY OF WHICH WOULD BE TESTED IN THE EVENT OF A CHALLENGE BY THE ASSESSEE'. 14. WE HAVE ALSO PERUSED THE EXPLANATION 3 TO SECTI ON 147 WHICH IS OF NO HELP TO THE REVENUE AS THE SAID EX PLANATION HAS BEEN CONSIDERED IN THE CASE OF CIT VS. JET AIRWAYS INDIA LTD. AND THE HONBLE BOMBAY HIGH COURT HAS CLEARLY HELD THAT THE ITA NOS.4538 & 4539/M/2016 M/S. GAGAN TRADING CO. LTD. 9 EXPLANATION CAN NOT OVER WRITE THE SUBSTANCE AND CO RE PROVISION OF THE SECTION AS IT IS ONLY INTENDED TO EXPLAIN TH E CONTENTS OF THIS SECTION. WE, THEREFORE, RESPECTFULLY FOLLOWIN G THE RATIO IN THE VARIOUS DECISIONS BY VARIOUS JUDICIAL FORUMS DIRECT THE AO TO DELETE THE ADDITION OF RS.40,99,900/- BY SETTING AS IDE THE ORDER OF LD. CIT(A) ON THIS ISSUE. SINCE WE HAVE DECIDED THE ISSUE IN GROUND NO. 4 IN FAVOUR OF THE ASSESSEE, THE OTHER ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 1 TO 3 NEED NO ADJUDI CATION. ITA NO.4539/M/2016 (A.Y. 2009-10) 15. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX-(APPEALS) (HEREINAFTER R EFERRED TO AS 'THE LD. CIT-(A)') ERRED IN CONFIRMING THE ASSUMPTION OF JURISDICTION U/S 148 BY THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS 'AO') WHICH WAS INHEREN TLY BAD IN LAW. 2. THE CIT-(A) ERRED IN UPHOLDING THE ACTION OF T HE AO OF RE-OPENING THE ASSESSMENT WITHOUT APPRECIATING THE FACT THAT THE A O HAD NO TANGIBLE MATERIAL AVAILABLE WHICH COULD LEAD TO A BELIEF THAT INCOME HAD ESCAPED ASSESSMENT, AND ALSO ERRED IN NOT APPRECIATING THE FACT THAT THE AP PELLANT ITSELF HAD FILED AN APPLICATION FOR RECTIFICATION WHICH WAS PENDING FOR DISPOSAL WITH HIM AT THE TIME OF INITIATING THE RE-ASSESSMENT PROCEEDINGS. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION AMOUNTING TO RS.22,40,421/- MADE BY THE AO IN RESPECT OF LONG TERM CAPITAL GAINS WITHOUT ASSIGNING A NY REASON OR JUSTIFICATION IN THE SPEAKING ORDER FOR ACCEPTING PRESUMPTIVE VIEW OR TH E AO AGAINST THE EVIDENCE ON RECORD AND THEREBY, COMPROMISING THE PRINCIPLES OF NATURAL JUSTICE. 4. THE LD. CIT(A) ERRED IN NOT APPRECIATING THE F ACT THAT THE EVIDENCE ON RECORD ESTABLISH THAT 62,000 EQUITY SHARES OF JSW STEEL LT D. SOLD OFF-MARKET ON 09.02.2009 PRECEDED THE SALE OF EQUITY SHARES OF JSW STEEL LTD . THOUGH THE STOCK EXCHANGE. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT-(A) ERRED IN UPHOLDING THE PRESUMPTIVE VIEW OF THE AO AGAINST TH E SETTLED POSITION OF LAW THAT IF TWO VIEWS ARE POSSIBLE THEN THE VIEW BENEFICIAL TO THE ASSESSEE SHOULD BE ADOPTED. 6. THE APPELLANT CRAVES LEAVE TO ADD TO AND/OR AM END, MODIFY OR WITHDRAW THE GROUNDS OUTLINED ABOVE BEFORE OR AT THE TIME OF HEA RING OF THE APPEAL. ITA NOS.4538 & 4539/M/2016 M/S. GAGAN TRADING CO. LTD. 10 16. GROUND NO.1 & 2 ARE IN RESPECT OF CHALLENGING T HE VALIDITY OF REASSESSMENT PROCEEDINGS WHEREAS THE GROUND NOS. 3 & 4 RAISED CHALLENGING THE ADDITION ON MERIT. 17. THE FACTS IN BRIEF ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME ON 18.09.2009 DECLARING INCOME OF RS.5,35,57 7/- AND ASSESSMENT WAS COMPLETED ON 13.12.2011 AT RS.9,82,5 0,820/-. THEREAFTER, THE ASSESSEE FILED APPEAL BEFORE THE LD . CIT(A) WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE TO WHICH THE EFFECT WAS GIVEN BY THE AO ON 06.09.2012. SUBSEQUENTLY, THE C ASE OF THE ASSESSEE WAS REOPENED UNDER SECTION 148 OF THE ACT WHICH WAS SERVED ON 21.03.2013 ON THE ASSESSEE. THE ASSESSEE FILED RETURN OF INCOME ON 18.04.2013 DECLARING INCOME AS DECLARED IN THE ORIGINAL RETURN AND THEREAFTER THE REASSESSMENT PROCEEDINGS ENSUED. ONE OF THE ISSUES IN THE REASONS RECORDED WAS THE SALE OF 62000 SHARES OF JSW STEEL LTD. ON 09.02.2009 WH ICH ACCORDING TO THE AO WERE PURCHASED IN F.Y. 2005-06. 18. THE FACTS IN BRIEF ARE THAT THE ASSESSEE SOLD 6 2,000 SHARES OF JSW STEELS LTD. OFF MARKET ON WHICH IT INCURRED A LOSS OF RS.2,14,38,173/- BESIDES SELLING 15,25,000 SHARES O F THE SAME COMPANY THROUGH STOCK EXCHANGE BSE AND NSE WHICH RE SULTED IN THE LONG TERM LOSS OF RS.44,29,11,406/-. ALL TH ESE LOSSES WERE WRONGLY CLAIMED TO BE CARRIED FORWARD BY THE ASSESS EE AND ALLOWED BY THE AO. HOWEVER, ASSESSEE REALIZING ITS MISTAKE FILED A NECESSARY RECTIFICATION APPLICATION AND THE ANOMA LY WAS CORRECTED BY NOT ALLOWING THE CARRY FORWARD OF LOSS ON SALE OF SHARES OF RS.15,25,000/- RESULTING INTO A LOSS OF RS.44,29,11,406/- WHEREAS THE LOSS RESULTING FROM 6 2000 SALE OF SHARES OF THE SAME COMPANY OFF MARKET ON WHICH NO S TT WAS ITA NOS.4538 & 4539/M/2016 M/S. GAGAN TRADING CO. LTD. 11 PAID TO THE TUNE OF RS.2,14,38,173/- WAS CLAIMED T O BE CARRIED FORWARD AND ALLOWED ACCORDINGLY. THUS, THE MISTAKE COMMITTED BY THE AO IN THE ORDER PASSED UNDER SECTION 143(3) WAS CORRECTED. ACCORDING TO THE AO THE SHARES OF JSW STEELS LTD. WERE ORIGINALLY ACQUIRED AND PURCHASED IN F.Y. 2005 -06 WHEREAS ACCORDING TO THE ASSESSEE THE SAME WERE PURCHASED I N 1995-96. ACCORDINGLY, THE AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY THE LONG TERM CAPITAL LOSS SHOULD NOT BE DIS ALLOWED AND INSTEAD A LONG TERM CAPITAL GAIN OF RS.22,40,421/- SHOULD NOT BE CHARGED. THE ASSESSEE REPLIED THE SHOW CAUSE NOTIC E AS UNDER: 8.1 ON THIS ISSUE THE ASSESSEE COMPANY THROUGH ITS AUTHORIZED REPRESENTATIVES LETTER DATED 07/03/2014 AS CONTAINED IN PARA 11 TO 14 REPLIED AS UNDER:- '11, IN SO FAR AS BALANCE 62,000 SHARES OF JSW S TEEL LIMITED SOLD WITHOUT PAYMENT OF STT ON 9-2-2009 ARE CONCERNED, IT HAS AL READY BEEN PROVED WITH DOCUMENTARY EVIDENCES AVAILABLE ON RECORDS THAT THE SAID SHARES WERE ACQUIRED IN FY 1994-95 AND NOT IN FY 2005-06 AS MEN TIONED IN YOUR NOTICE. THESE 62,000 SHARES WERE SOLD OFF MARKET ON 9TH FEB RUARY, 2009 FOR A CONSIDERATION OF RS 1,38,57,000/-. THE SHARES WERE DELIVERED FROM DEMAT ACCOUNT NO 14042028 MAINTAINED WITH STOCK HOLDING C ORPORATION OF INDIA ON THE SAME DAY I.E. 9TH FEBRUARY, 2009 AND CONSIDE RATION WAS ALSO RECEIVED ON THE SAME DAY IN CURRENT ACCOUNT NO 5005003000012 96 WITH VIJAYA BANK. COLABA MUMBAI. HENCE THE ENTIRE TRANSACTION WAS CO MPLETED ON 9TH FEBRUARY, 2009. THESE SHARES WERE HELD BY ASSESSEE AT A COST OF RS.1,70,41,143/- SINCE FY 1994-95, HENCE LONG T ERM CAPITAL LOSS OF RS.2,14,38,173/- WAS CORRECTLY COMPUTED ON TRANSFER OF THESE SHARES AS PER PROVISIONS OF SECTION 48 OF THE ACT. AS THESE SHAR ES HAVE BEEN SOLD WITHOUT PAYMENT OF STT, LONG TERM CAPITAL LOSS OF RS.2,14,3 8,173/- ARISING DUE TO THEIR TRANSFER HAS BEEN RIGHTLY CARRIED FORWARD. 12. THE DETAILED COMPUTATION SHEET OF LONG TERM CAP ITAL LOSS ON SALE OF SHARES AS PER ANNEXURE 4 REVEALS THE COMPLETE TRANS ACTION WHICH IS VERIFIABLE WITH BROKER NOTES, SALE CONTRACTS, BANK STATEMENT AND DEMAT ACCOUNTS, STATEMENT FOR FY 2009-10 ALREADY ON RECOR D AND RESUBMITTED FOR SAKE OF BREVITY AS ANNEXURE 4. A READING OF DEMAT S TATEMENT SHOWS THAT THE 62,000 SHARES SOLD OFF MARKET ON 9TH FEBRUARY 2009 WERE ACTUALLY TRANSFERRED TO PURCHASERS DEMAT ACCOUNT ON THE SAME DAY WHILE THE OTHER SHARES SOLD ON BSE (1,18,000) AND NSE (1,07,000) VI DE CONTRACTS DATED 9TH FEBRUARY, 2009 WERE DELIVERED ON 10 TH FEBRUARY, 2009. THUS THE COMPUTATION OF LONG TERM CAPITAL LOSS FOLLOWING FIF O METHOD HAS BEEN CORRECTLY MADE. ITA NOS.4538 & 4539/M/2016 M/S. GAGAN TRADING CO. LTD. 12 13. HENCE, THE PREMISE THAT A GAIN OF RS 22,40, 421/- HAD ARISEN ON SALE OF THESE 62,000 SHARES SOLD OFF MARKET IS FACTUALLY IN CORRECT AND THEREFORE NO QUESTION OF ANY SET OFF OF SUCH IMAGINARY GAIN AGAI NST ANY LOSS ARISES. THE ISSUE RAISED BY YOUR GOODSELF IN REASONS RECORDED A S WELL AS THE REFERRED NOTICE IS BASED ON INCORRECT AS SUMPTIONS CONTRARY TO UNCONTROVERTED THIRD PARTY DOCUMENTARY EVIDENCES AV AILABLE ON RECORD. 14. IN VIEW OF THE ABOVE IT IS ONCE AGAIN HUMBLY RE QUESTED THAT THE RECTIFICATION APPLICATION DATED 13-3-2013 FILED BY ASSESSEE MAY KINDLY BE DISPOSED OFF BY WITHDRAWING THE INCORRECT LONG T ERM, CAPITAL LOSS OF RS 44,29,11,406/- AS ABOVE. IN SO FAR AS CURRENT REASS ESSMENT PROCEEDINGS ARE CONCERNED, AS NOTHING ELSE REMAINS AFTER DISPOSAL O F RECTIFICATION APPLICATION, THE SAME ARE REQUESTED TO BE DROPPED.' THE AO FINALLY REJECTED THE CONTENTIONS THAT 62,00 0 SHARES SOLD BY THE ASSESSEE OFF MARKET WERE IN FACT PURCHASED I N 1995-96 AND BY TREATING THE SAME AS BEING PURCHASED IN 2005 -06 REJECTED THE METHODOLOGY OF THE ASSESSEE THAT SHARE WERE FIRST SOLD AS PER FIFO METHOD. FINALLY THE AO REJECTED T HE LOSS AS CLAIMED BY THE ASSESSEE OF RS.2,14,38,173/- AND AD DED RS.22,40,421/-AS LONG TERM CAPITAL GAIN ON SALE OF 62,000 SHARES IN THE ASSESSMENT FRAMED UNDER SECTION 143(3 ) READ WITH SECTION 147 VIDE ORDER DATED 29.03.2014. 19. IN THE APPELLATE PROCEEDINGS THE LD. CIT(A) DIS MISSED THE APPEAL OF THE ASSESSEE ON THIS ISSUE BY OBSERVING A ND HOLDING AS UNDER: 5.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND SUBMISSIONS MADE BY THE LEARNED AR. THE AO HAS WORKED OUT THE LONG TER M CAPITAL GAIN WHICH HAS ESCAPED ASSESSMENT AS UNDER- SHARES OF JSW STEEL LTD. AS ON 01/04/2008 17564 41 SOLD DURING F.Y.2008-09 1587000 BALANCE SHARES 169441 FROM THE DATA PROVIDED SHARES OF JSW STEEL PURCHASED IN F.Y.2005-06 33 8391 LESS : BALANCE AS ON 31/03/2009 169441 SHARES OF F.Y.2005-06 SOLD IN F.Y.2008-09 168950 ITA NOS.4538 & 4539/M/2016 M/S. GAGAN TRADING CO. LTD. 13 PURCHASE COST @ RS.160 IN RESPECT OF 168950 SHARES RS.2,70,32,000/- PURCHASE COST @ RS.160 IN RESPECT OF 62000 SHARES RS.99,20,000/- INDEXED COST OF 62000 SHARES 99,20,000 X 582/497 = RS.1,16, 16,579/- SALE PRICE OF 62000 SHARES = RS.1 ,38,57,000/- THUS CAPITA! GAIN (SALE-PURCHASE COST) = RS. 22, 40,421/- IN VIEW OF THE ABOVE WORKING AND REASONING GIVEN BY THE AO, I'M OF THE OPINION THAT RS. 22, 40,421 NEEDS TO BE TAXED UNDER LONG TERM CA PITAL GAIN. THE ADDITION MADE BY THE AO IS CONFIRMED. THE GROUND IS DISMISSED. 20. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD INCLUDING THE VA RIOUS DOCUMENTS FILED IN THE PAPER BOOK BY THE LD. A.R. I N SUPPORT OF HIS ARGUMENTS. WE HAVE EXAMINED THE COMPUTATION OF CAPITAL GAIN IN RESPECT OF SALE OF JSW STEEL IN F.Y. 2008-0 9. WE FIND THAT THE ASSESSEE HAS SOLD 62,000 SHARES OFF MARKET ON 09.02.2009 WHEREAS THE 1,07,000 SHARES WERE SOLD ON NSE AND 1,18,000 SHARES WERE SOLD ON BSE. ON THE SALE OF S HARES ON THE STOCK EXCHANGE THE STT WAS PAID. WE FURTHER NOTE T HAT ON THE SALE OF SHARES OFF MARKET, THE ASSESSEE HAS INCURRE D A LOSS OF RS.2,14,38,173/- BASED ON THE FACT THAT ASSESSEE HA S FOLLOWED FIFO METHOD THEREBY SELLING THE OFF MARKET SHARES O UT OF PURCHASES MADE IN 1995-96 WHEREAS AS PER THE AO CA ME TO THE CONCLUSION THAT SAID SALE OF SHARES WERE OUT FRO M PURCHASES MADE IN 2005-06. WE HAVE ALSO EXAMINED THE D-MAT STATEMENT OF THE ASSESSEE IN WHICH THE SHARES SOLD OFF MARKET WERE CREDITED AND SHOWN AS SOLD ON 09.02.2009 WHERE AS THE SHARES SOLD ON THE BSE/NSE WERE CREDITED IN THE D-M AT ACCOUNT ON 10.02.2009. SIMILARLY, WE HAVE EXAMINED THE BAN K STATEMENT OF THE ASSESSEE AND OBSERVED THAT THE SAL E CONSIDERATION RECEIVED ON THE SALE OF OFF MARKET SA LE OF 62,000 SHARES WAS CREDITED IN THE BANK ACCOUNT ON 09.02.20 09 WHEREAS THE SHARES SOLD ON MARKET ON NSE/BSE WERE CREDITED ON ITA NOS.4538 & 4539/M/2016 M/S. GAGAN TRADING CO. LTD. 14 11.02.2019. AFTER CONSIDERING THE FACTS AND CIRCUMS TANCES IN TOTALITY , WE ARE OF THE OPINION THAT THE AO CANNO T PRESUME THAT SHARES MIGHT HAVE BEEN LEFT OUT OF THE LOT WHICH WE RE PURCHASED IN 2005-06 AND SHARES SOLD ON BSE/NSE WERE PURCH ASED PRIOR TO 2005-06. IT IS FOR THIS REASON, WE ARE NO T IN AGREEMENT WITH THE CONCLUSION DRAWN BY THE LD. CIT(A). ACCOR DINGLY, WE SET ASIDE THE ORDER OF LD. CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION OF RS.22,40,421/-. 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05.02.2019. SD/- SD/- ( AMARJIT SINGH) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 05.02.2019. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.