M/s. National Stock Exchange of India Ltd., Mumbai V. DCIT Circle7(1), Mumbai

ITA 4854/MUM/2004

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93137 (ITAT-MUMBAI)
• Duration Of Justice: 11 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 22-06-2015
• Assessment Year: 1996-1997
• Appeal Filed On: 11-06-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: YOGESH KAMATH SR
• Keywords: Earning of tax free income; Revised return
• Section: 143(3); 147; 148

Judgement Text

4854 & 4485/M/04 , NATL. STOCK EXCHANGE 1 , INCOME TAX APPELLATE TRIBUNAL,MUMBAI - B, BENCH , , BEFORE S/SH. JOGINDERSINGH ,JUDICIAL M EMBER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 4854 /MUM/2 004 , / ASSESSMENT YEAR - 1996 - 97 M/S. NAT IONAL STOCK EXCHANGE OF INDIA LIMITED EXCHANGE PLAZA, C - 1, BLOCK - G BANDRA KURLA COMPLEX, BANDRA (E) MUMBAI - 400 051. PAN: AAACN 17 97 L VS DY. CIT, CIRCLE 7(1) ASSESSEE YKAR BHAVAN,M K ROAD, MUMBAI - 400 0 20 . ( / A PPELLANT ) ( / RESPONDENT ) /. ITA NO.4485 /MUM/2004, / ASSESSMENT YEAR - 1996 - 97 DY. CIT, CIRCLE 7(1) ASSES SEE YKAR BHAVAN,M K ROAD, MUMBAI - 400 0 20 . VS M/S. NAT IONAL STOCK EXCHANGE OF INDIA LIMITED /ASSESSEE BY :SHRI VIJAY MEHTA / REVENUE BY :SHRI YOGESH KAMATH - SR.AR / DATE OF HEARING : 30 - 0 6 - 2015 / DATE OF PRONOUNCEMENT : 30 - 0 6 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DT. 18.3.2004 OF CIT(A) - XIX, THE ASSESSEE AND THE ASSESSING OFFICER(AO) , HA VE FILED CROSS APPEALS . GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER : - ITA NO.4854/MUM/2004 1. ON THE - FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE REOPENING OF THE ASSESSMENT U/S.147 AND ALSO THE ISSUING OF THE NOT ICE DATED 24.02.2003 U/S.148 OF THE INCOME - TAX ACT, 1961 AND THE REASONS ASSIGNED BY HIM FOR DOING SO ARE WRONG AND CONTRARY TO THE FACTS OF THE CASE, PROVISIONS OF LAW AND RULES MADE THEREUNDER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN U/S.139 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT AND HENCE THE RE - OPENING OF THE ASSESSMENT U/S.147 AND ISSUE OF NOTICE U/S.148 IS TIME BARRED IN VIEW OF THE PROVISO TO SECTION 147 AND HENCE THE PROCEEDINGS ARE BAD IN LAW AND VOID AB - INITIO. WITHOUT PREJUDICE TO THE ABOVE GROUNDS: 3. ON THE FACTS AND I N THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF 4854 & 4485/M/04 , NATL. STOCK EXCHANGE 2 EXPENDITURE OF RS.8,94,908/ - BEING 0.5% OF GROSS INTEREST INCOME AND REDUCING EXEMPTION U/S 10(15) OF THE IT. ACT, 196 1, ASSUMING THAT AN EXPENDITURE OF RS.8,94,908/ - MUST HAVE BEEN INCURRED FOR EARNING GROSS INTEREST AND THE REASONS ASSIGNED BY HIM FOR DOING SO ARE WRONG AND CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE CASE, PROVISIONS OF INCOME TAX ACT, 1961, AN D THE RULES MADE THEREUNDER. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT ALL THE EXPENSES BEING INCURRED FOR THE PURPOSE OF BUSINESS, CANNOT BE APPORTIONED A S THOSE FOR EARNING INTEREST INCOME AS THE INVESTMENT IN TAX FREE BONDS IS ALSO IN THE COURSE OF ITS BUSINESS . THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND AND/OR TO ALTER ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HEARING. I TA N O .4485/MUM/2004 THE AO HAS FILED FOLLOWING GROUNDS OF APPEAL: 1 . ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE EXPENDITURE CONNECTED WITH EARNING OF INTEREST INCOME EXEMPT U/S.1 0(15) FROM 2% TO 0.5% FOLLOWING THE DECISION OF THE CIT(A) FOR THE EARLIER A.YS WHICH HAS NOT BEEN ACCEPTED BY THE DEPARTMENT. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO BE RESTORED. THE APPELLANT CRAVE S LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND THAT MAY BE NECESSARY. 2. ASSESSEE - CO MPAY IS A STOCK EXCHANGE WITH A SCREEN BASED FACILITY FOR TRADING IN SHARES AND SECURITIES .IT FILED RETURN OF INCOME ON 29.11.96 DECLARING I NCOME OF RS. 07 .94 CRORES . LATER ON, A REVISED RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 7.64 CR ORES WAS FILED ON 20.11. 1997. ASSESSMENT U/S. 143(3) WAS COMPLETED ON 24. 0 3. 19 99 DETERMINING TOTAL INCOME OF THE ASSESSEE AT RS. 10.57 CR ORES . SUBSEQUENTLY, THE ASS ESSMENT W AS R E - OPENED U/S. 147 OF THE ACT BY ISSUE OF NOTICE U/S. 148 DT.24. 0 2. 20 03. R EASSESSMENT U/S. 143(3) R.W.S.147 WAS COMPLETED ON 14.8. 20 03 ASSESSING THE TOTAL INCOME OF THE ASSESSEE AT RS. 10.93 CR ORES , AFTER DISALLOWING EXPENDITURE OF RS.35.79 CR ORES I NCURRED F OR EARNING INT EREST ON TAX FREE SECURITIES. THE MATTER WAS RE - OPENE D TO DISALLOW TH E EXPENSE INCURRED FOR EARNING INT EREST ON TAX FREE BONDS AS THE SAME WAS EXEMPT U/S. 10(15) OF THE ACT. THE MATTER TRAV ELLED UPTO ITAT. VIDE ITS ORDER, DATED 22.12.2008 , THE APPEALS FILED BY THE ASSESSEE AND THE AO WERE PARTLY ALLOWED. THE ASSESSEE FILED APPLICATIONS U/S. 254(2) OF THE ACT. IT WAS MENTIONED IN THE APPLICATION THAT THE ASSESSEE HAD CHALLENGED THE ORDER OF THE FIRST APPELLATE AUTHORITY (FAA) IN CONFIRMING THE RE OPENING OF THE ASSESSMENT U/S. 147 OF THE ACT, THAT AT THE TIME OF ARGUING IT WAS SUBMITTED THAT S.14A WAS NOT APPLICABLE TO THE FACTS OF THE CASE, THAT THE T RIBUNAL ON MISTAKEN ASSUMPTION HAD HELD THAT THE RE - OPENING PROCEEDINGS WERE VALID AND THAT THE IS SUE RELATING TO S.14 A SHOULD BE RESTORED TO THE FILE OF THE AO. THE TRIBUNAL IN ITS ORDER , DT.31.8. 20 09 , OBSERVED THAT RE - OPENING OF THE ASSESSMENT WAS UPHELD UNDER THE MISTAKEN ASSUMPTION THAT THE AUTHORISED REPRESENTATIVE ( AR ) OF THE ASSESSEE HAD CONCEDED THE SAME ,THAT HE HAD OBJECTED TO THE SAME ON THE GROUND THAT AO WAS PROHIBITED FROM RE - ASSESSING THE INCOME BY DISALLOWANCE U/S. 14A, THAT THE ORDER OF THE T RIBUNAL SUFFERED FROM MISTAKES APPARENT FROM THE RECORD. THE T RIBUNAL RECALLED ITS EARLIER ORDER A ND DIRECTED THE REGISTRY TO ISSUE FRESH NOTICE OF HEARING IN DUE COURSE. ITA NO.4854/MUM/2004 4854 & 4485/M/04 , NATL. STOCK EXCHANGE 3 3. THE FIRST TWO GROUND RAISED BY THE ASSESSEE DEAL WITH THE RE - OPENING OF THE ASSESSMENT U/S. 147. THE SECOND EFFECTIVE GROUND IS ABOUT CONFIRMING THE DISALLOWAN CE OF EXPENDITURE U/S. 10(15) OF THE ACT. AS THE FIRST TWO GROUNDS OF APPEAL PERTAIN TO JURISDICTION OF THE AO WE WOULD LIKE TO DEAL WITH THEM FIRST.WE FIND THAT THE AO HAD RE - OPENED THE ASSESSMENT BY RECORDING THE FOLLOWING REASONS U/S. 147 OF THE ACT. THE ASSESSEE HAD EARNED GROSS INTEREST OF RS.1789.81 LACS ON THE TAX FREE BONDS. THIS INTEREST INCOME WAS EXCLUDED FROM THE TAXABLE INCOME ON GROSS BASIS AS IT WAS CLAIMED TO EXEMPT. HOWEVER, UNDER THE PROVISIONS OF SEC.10(15) THE INCOME WHICH IS EXEMPT HA S TO BE COMPUTED AFTER ALLOCATING THE EXPENSES INCURRED ON EARNING SUCH EXEMPT RECEIPTS. THE EXPENDITURE ALLOCABLE TO THE EARNING OF THE EXEMPT INCOME WOULD ACCORDINGLY, HAVE TO BE EXCLUDED FROM THE EXPENDITURE CHARGED AGAINST TAXABLE INCOME IN ORDER TO DE TERMINE THE TRUE AND CORRECT TAXABLE INCOME. THEREFORE BY NOT DISALLOWING THE EXPENDITURE ATTRIBUTABLE TO THE EARNING OF THE EXEMPT INTEREST INCOME, THE INCOME CHARGEABLE TO TAX HAS BEEN UNDER ASSESSED. THEREFORE, I HAVE REASONS TO BELIEVE THAT INCOME CHAR GEABLE TO TAX HAS ESCAPED ASSESSMENT UNER THE PROVISIONS OF EXPLANATION 2(C)(I) TO SEC.147. 4. IN THE APPELLATE PROCEEDINGS THE FAA HAD PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE . 5. B EFORE US,THE AR S UBMITTED THAT ASSESSMENT WAS RE - OPENED AFTER FOU R YEARS, THAT THE AO HAD NOT MENTIONED AS TO HOW THE FAILURE OF THE ASSESSEE WAS RESPONSIBLE FOR ESCAPEMENT OF INCOME, THAT THE ASSESSEE HAD DISCLOSED ALL THE NECESSARY FACTS IN THE RETURN OF INCOME, THAT IN THE ORIGINAL APPELLATE PROCEEDINGS BEFORE THE AO AND THE T RIBUNAL IT HAD CHALLENGED THE VALIDITY OF THE RE - OPENING. HE RELIED UPON THE CASES OF HINDUSTAN LEVER LTD. ( 268 ITR 332) ; GERMAN REMEDIES LTD.(287 ITR 494); MIHIR TEXTILES LTD. (106 TAXMANN 435); FENNER (INDIA) LTD. (241 ITR 672); BISWANATH TEA CO. LTD.(267 ITR 687); DULI CHAND SINGHANIA (269 ITR 192); MARUDHAR HOTELS PVT. LTD. (259 ITR 509); BABU LAL JUG RAJ & CO. (289 ITR 115); INDIAN FARMERS FERTILIZERS CO - OP LTD.(171 TAXMANN 379) AND STERLITE INUSTRIES (INDIA) LTD. (305 ITR 339). DEPARTMENTAL REPRESENTATIVE ( DR ) SUPPORTED THE RE - OPENING. 6 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US .WE FIND THAT THE ASS ESSMENT WAS REOPENED AFTER A PERIOD OF FOUR YEARS, THAT THE AO HAD NOT MENTIONED AS TO HOW FAILURE OF THE ASSESSEE HAD RESULTED IN THE ESCAPEMENT OF INCOME. IN OUR OPINION IF THE AO WANTS TO IN V OKE THE PROVISIONS OF S.147 AFTER A PERIOD OF FOUR YEARS HE HAS TO COMPULSORILY ELABORATE THAT THERE WAS FAILURE OF THE ASSESSEE TO DISCLOSE TRULY AND FULLY THE RELEVANT FACTS TO DECIDE THE TAXABILITY OF THAT PARTICULAR YEAR. THE COURTS ARE OF THE VIEW THAT NOT ONLY THE FACT OF FAILURE OF THE ASSESSEE HAS TO BE MENTIONED IT HAS TO BE EXPLAINED AS TO HOW ASSESSEE HAD FAILED AND HIS FAIL URE ENDED IN UNDER ASS ESSMENT OR ESCAPEMENT OF INCOME. HERE WE WOULD LIKE TO REPRODUCE THE RELEVANT PORTION OF JUDGEMENT OF HINDUSTAN LEVER LTD. (SUPRA)AND IT READS AS UNDER: WHERE AN ASSESSMENT UNDER SUB - SECTION (3) OF SECTION 143 OF THE INCOME - TAX ACT, 1961, HAS BEEN MADE FOR AN ASSESSMENT YEAR, NO ACTION CAN BE TAKEN UNDER SECTION 147 AFTER THE EXPIRY OF FOUR YEARS 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 ASSESSEE TO DISCLOSE ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR. THE REASONS RECORDED FOR ISSUING NOTICE PROVIDE THE LINK BETWEEN CONCLUSION AND EVIDENCE. THE REASONS RECORDED MUST BE BASED ON EVIDENCE. THE ASSESSING OFFICER IN THE EVE NT OF CHALLENGE TO THE REASONS, MUST BE ABLE TO JUSTIFY THE SAME BASED ON MATERIAL AVAILABLE ON RECORD. HE MUST DISCLOSE IN THE REASONS AS TO WHICH FACT OR MATERIAL NOT DISCLOSED BY THE ASSESSEE FULLY AND TRULY WAS NECESSARY FOR ASSESSMENT OF THAT ASSESSME NT YEAR, SO AS TO ESTABLISH THE VITAL LINK BETWEEN THE 4854 & 4485/M/04 , NATL. STOCK EXCHANGE 4 REASONS AND EVIDENCE. THAT VITAL LINK IS THE SAFEGUARD AGAINST ARBITRARY REOPENING OF THE CONCLUDED ASSESSMENT. THE REASONS RECORDED BY THE ASSESSING OFFICER CANNOT BE SUPPLEMENTED BY FILING AN AFFIDAV IT OR MAKING AN ORAL SUBMISSION. SIMILARLY,IN THE CASE OF GERMAN REMEDIES LTD.(SUPRA)THE HONBLE BOMBAY HIGH COURT HAS HELD AS FOLLOW: THAT FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULL AND TRUE MATERIAL HAD NOT BEEN ALLEGED. IN THE CIRCUMSTANCES, THE NOTICE HAVING BEEN ISSUED BEYOND FOUR YEARS FROM THE LAST DATE OF THE RELEVANT ASSESSMENT YEAR WITHOUT ALLEGING ANY FAILURE TO DISCLOSE FULL AND TRUE MATERIAL FACTS WAS LIABLE TO BE SET ASIDE. WHILE GRANTING APPROVAL TO THE NOTICE IT WAS OBLIGATORY ON THE PART OF THE COMMISSIONER TO VERIFY WHETHER THERE WAS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULL AND TRUE RELEVANT FACTS IN THE RETURN OF INCOME FILED FOR THE ASSESSMENT OF INCOME OF THAT ASSESSMENT YEAR. IT WAS ALSO OBLIGATORY ON THE PAR T OF THE COMMISSIONER TO CONSIDER WHETHER OR NOT POWER TO REOPEN WAS BEING INVOKED WITHIN A PERIOD OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR TO WHICH THE PROCEEDINGS RELATED. NONE OF THESE ASPECTS HAD BEEN CONSIDERED BY HIM. THE NOTICES AND CONSEQU ENTLY THE ORDER JUSTIFYING REASONS RECORDED WERE UNSUSTAINABLE. RESPECTFULLY FOLLOWING THE ABOVE TWO DECISIONS OF THE JURISDICTIONAL HIGH COURT, WE DECIDE THE EFFECTIVE GROUND OF APPEAL NO.1 AND 2 IN FAVOUR OF THE ASSESSEE AND HOLD THAT THE ORDER OF THE FA A WAS NOT VALID. WE ARE NOT DECIDING THE NE X T EFFECTIVE GROUND OF APPEAL BECAUSE WE HAVE HELD THAT THE ORDER OF THE FAA WAS INVALID. ITA NO.4485/MUM/04 WHILE DECIDING THE APPEAL OF THE ASSESSEE , WE HAVE ALREADY HELD THAT THE ORDER OF THE FAA IS INVALID , T HEREFORE, THE GROUNDS RAISED BY THE AO ARE DISMISSED. AS A RESULT,APPEAL FILED BY THE ASSESSEE IS ALLOWED AND APPE A L OF THE AO STANDS DISMISSE D ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH , JUNE ,2015. 30 , 2015 SD/ - SD - ( / JOGINDER S INGH ) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 30 .0 6 .2015 . . . JV . SR.PS. 4854 & 4485/M/04 , NATL. STOCK EXCHANGE 5 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONC ERNED CIT / 5. DR B BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.