ACIT, New Delhi V. Super Cassettes Industries Ltd., Noida

ITA 5263/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91406 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 19-05-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 12-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: B R R KUMAR
• Keywords: Search and seizure; Difference of opinion; Reason to believe; Change of opinion; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 143(3); 142(1); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRIA.T. VARKEY: JUDICIAL MEMBER ITA NO. 5263/DEL/2012 ASSTT. YR: 2004-05 ACIT, CIRCLE 9(1), VS. SUPER CASSETTES INDUSTRIES LTD., CIRCLE 9(1), NEW DELHI. PLOT NO. 1, FILM CITY, SECTOR-16A, NOIDA. PAN: AABCS 4712 P ( APPELLANT ) (RESPONDENT) APPELLANT BY : SHRI HIREN MEHTA CA RESPONDENT BY : SHRI B.R.R. KUMAR SR. DR DATE OF HEARING : 19/05/2015. DATE OF ORDER : 08/07/2015. O R D E R PER S.V. MEHROTRA, A.M: THIS APPEAL, PREFERRED BY THE REVENUE, IS DIRECT ED AGAINST CIT(A)S ORDER DATED 11-07-2012 RELATING TO A.Y. 2004-05. FOLLOW ING GROUNDS ARE RAISED: 1. THE LD. CIT(A) ERRED IN LAW AND ON FACTS BY QUA SHING REASSESSMENT UNDER SECTION 147/148 OF THE ACT AS TH E FAILURE IS ON PART OF THE ASSESSEE TO DISCLOSE TRULY AND FULLY ALL MATERIAL FACTS. 2. THE LD. CIT(A) ERRED ON THE FACTS AND CIRCUMSTAN CES OF THE CASE AND LAW IN DELETING THE ADDITION ON ACCOU NT OF REPAIR AND MAINTENANCE, BUILDING EXPENSES AND DESIGN AND A CT WORK EXPENSES AMOUNTING TO RS. 45,51,661/-. 2 3. THE APPELLANT CRAVES LEAVE TO AMEND, MODIFY, AL TER, ADD OR FOREGO ANY GROUND OF APPEAL AT ANY TIME BEFORE O R DURING THE HEARING OF THIS APPEAL. 2. THE ASSESSEE COMPANY, FOR AY 2004-05, FILED ITS RETURN OF INCOME DECLARING INCOME OF RS. 10,40,11,590/- ON 1-11-200 4. THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 22-3-2005. THEREAFTER, AO I SSUED NOTICE U/S 148 ON 23-3-2011 AFTER RECORDING FOLLOWING REASONS: DURING THE YEAR, THE ASSESSEE COMPANY HAS SHOWN AN AMOUNT OF RS. 4,13,61,284/- AS UNSECURED LOANS FROM DIREC TORS IN SCHEDULE 4 OF THE BALANCE SHEET WHEREAS AS PER ANNE XURE I-1 TO FORM 3CD OF THE AUDIT REPORT, THE OUTSTANDING UNSE CURED LOAN AGAINST THE DIRECTORS WAS SHOWN AT RS. 17,765 ,66,492/-. THIS SHOWS THAT THE ASSESSEE HAS NOT ACCOUNTED UNS ECURED LOAN WORTH RS. 13,63,05,208/- IN THE BOOKS OF ACCOUNTS. FURTHER, THE ASSESSEE AHS ALSO DEBITED RS. 53,64,71 0/- & RS. 12,92,529/- IN THE PROFIT AND LOSS ACCOUNT IN RESPE CT OF REPAIRS OF MACHINERY AND BUILDING & PURCHASE OF CA PITAL ITEMS AND DESIGN AND ART WORK RESPECTIVELY. THES E EXPENDITURES WERE IN THE NATURE OF CAPITAL WHICH I S NOT ALLOWABLE AS PER THE PROVISIONS OF THE ACT. THEREFO RE, THE SAME SHOULD HAVE BEEN DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. 3. THE ASSESSEE VIDE ITS LETTER DATED 14-4-2011 SUB MITTED THAT THE RETURN FILED ON 1-11-2004 MAY BE TREATED AS RETURN OF INCO ME IN RESPONSE TO NOTICE U/S 148. ASSESSEE FURTHER REQUESTED FOR REASONS REC ORDED FOR REOPENING THE ASSESSMENT, WHICH WERE ALSO PROVIDED TO IT. THE AO, SUBSEQUENTLY ISSUED NOTICE U/S 142(1) AND COMPLETED THE ASSESSMENT MAKI NG ADDITION OF RS. 3 45,51,667/- BY TREATING THE EXPENDITURE INCURRED ON ACCOUNT OF DESIGN AND ART WORK AND EXPENDITURE INCURRED ON REPAIRS OF MACHIN ERY AND BUILDING AGGREGATING TO RS. 66,57,239/- AS CAPITAL EXPENDITU RE. SINCE IN THE ORIGINAL ASSESSMENT, AO HAD DISALLOWED AN AMOUNT OF RS. 5,88 ,350/-, THE AO MADE THE IMPUGNED ADDITION AFTER ALLOWING 25% DEPRECIATI ON ON ADDITION OF RS. 60,68,889/-. 4. BEFORE LD. CIT(A) THE ASSESSEE ASSAILED THE REAS SESSMENT PROCEEDINGS INITIATED U/S 147 READ WITH SECTION 148 AS BEING WI THOUT JURISDICTION AND BAD IN LAW. LD. CIT(A), AFTER CONSIDERATION OF DETAILE D SUBMISSIONS ADVANCED BY LD. COUNSEL FOR THE ASSESSEE, QUASHED THE REASSESSM ENT PROCEEDINGS, MAINLY FOR FOLLOWING REASONS: (A) REASSESSMENT PROCEEDINGS WERE INITIATED AFTER THE E XPIRY OF FOUR YEARS. THEREFORE, IN VIEW OF PROVISO TO SECTION 147 , SINCE THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS, NECESSARY FOR ITS ASSESSMENT, NO RE OPENING COULD BE DONE. (B) THE REASONS WERE BASED ON FORM 3CD AND NOT ON ANY N EW MATERIAL. SINCE THE ASSESSMENT WAS COMPLETED U/S 143(3), THER EFORE, IT WAS A CASE OF CHANGE OF OPINION PARTICULARLY BECAUSE THE ASSESSEE AT THE TIME OF ORIGINAL ASSESSMENT PROCEEDINGS HAD GIVEN D ETAILED REPLY TO THE QUESTIONNAIRE AND ORDER-SHEET ENTRIES BY THE AO . 4 (C) THE AO SUMMARILY REJECTED THE OBJECTIONS RAISED BY ASSESSEE TO THE REASONS RECORDED WHICH IS AGAINST THE PRINCIPLE LAI D DOWN BY HONBLE SUPREME COURT IN THE CASE OF GKN DRIVESHAFT LTD. 2 59 ITR 90 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E PERUSED THE RECORD OF THE CASE. ADMITTEDLY, THE REOPENING HAS BEEN DON E AFTER FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR AND, THEREF ORE, THE PROVISO TO SECTION 147 WAS ATTRACTED. IN VIEW OF THIS PROVISO, UNLESS THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY AL L MATERIAL FACTS, NECESSARY FOR ASSESSMENT, NO REOPENING COULD BE DONE. A BARE PERUSAL OF THE REASONS RECORDED BY AO MAKES IT EVIDENT THAT THE REOPENING HAS BEEN DONE, FIRSTLY, ON THE BASIS OF ALLEGED DIFFERENCE BETWEEN THE UNSE CURED LOANS FROM DIRECTORS IN SCHEDULE 4 OF THE BALANCE-SHEET AS AGA INST DETAILS AS PER ANNEXURE I-1 TO FORM 3CD OF THE AUDIT REPORT. SECON DLY, THE AO REOPENED THE ASSESSMENT CONSIDERING THE REPAIRS TO MACHINER Y AND BUILDING AND PURCHASE OF CAPITAL ITEMS AND DESIGN AND ART WORK AS CAPITAL EXPENDITURE. THUS, IN THE REASONS, THE AO HAS NOWHERE MENTIONE D ABOUT ANY KIND OF FAILURE ON THE PART OF AO TO DISCLOSE FULLY AND TRU LY ALL MATERIAL FACTS. THE AO ADOPTED THE FIGURE OF OUTSTANDING LOAN AGAINST T HE DIRECTORS FROM AUDIT REPORT AT RS. 17,76,66,492/-, WHEREAS IN THE BALANC E-SHEET IT WAS RS. 4,13,61,284/-. THE REOPENING SOLELY ON THE BASIS OF DIFFERENT FIGURES, APPEARING IN THE BALANCE-SHEET AND IN FORM 3CD IN R ESPECT OF SAME ITEM, COULD NOT BE DONE WITHOUT PROPER APPLICATION OF MIN D BEFORE RECORDING THE REASONS. THE CARDINAL PRINCIPLE IS THAT BEFORE REOP ENING THE ASSESSMENT THE AO SHOULD APPLY HIS MIND AND REACH A PRIMA FACIE CO NCLUSION REGARDING ESCAPEMENT OF INCOME AND SHOULD NOT MECHANICALLY RE CORD HIS REASONS 5 WITHOUT DUE APPLICATION OF MIND. THE ABSENCE OF ANY APPLICATION OF MIND IS MANIFEST FROM THE FACT THAT WHILE MAKING THE ASSESS MENT, THE AO HIMSELF DID NOT MAKE ANY ADDITION ON THIS COUNT. THEREFORE, REA SONS RECORDED ON THIS COUNT, WERE RIGHTLY NOT SUSTAINED BY LD. CIT(A). 6. NOW COMING TO THE ISSUE REGARDING TREATING THE REPAIRS OF MACHINERY AND BUILDING & PURCHASE OF CAPITAL ITEMS AND DE SIGN AND ART WORK, PURELY AS CAPITAL EXPENDITURE, WE FIND THAT BEFORE AO ITSELF THE ASSESSEE HAD POINTED OUT THAT A QUERY WAS RAISED DURING ASSESSME NT PROCEEDINGS IN RESPECT OF DESIGN AND ART WORK EXPENSES AND THE SAME WAS SP ECIFICALLY REPLIED VIDE ASSESSEES LETTER . SIMILARLY, IT WAS POINTED OUT THAT IN REGARD TO REPAIRS AND MAINTENANCE OF BUILDING AND PLANT & MACHINERY, THE ASSESSEE WAS ASKED TO FURNISH EXPLANATION FOR EACH AND EVERY ITEM, WHICH WAS DULY COMPLIED WITH BY FILING A LETTER IN THIS REGARD. FURTHER, IT WAS POINTED OUT THT THE DETAILS OF MACHINERY AND BUILDING REPAIRS ALONG WITH THE COPY OF BILLS WERE ALSO FILED DURING ASSESSMENT IN COMPLIANCE TO THE REQUIREMENT OF QUESTIONNAIRE DATED 29-6-2006. ALL THESE ASPECTS HAVE NOT AT ALL BEEN C ONTROVERTED BY DEPARTMENT. FROM THE ABOVE IT IS EVIDENT THAT THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MAT ERIAL FACTS, NECESSARY FOR COMING TO A CONCLUSION, WHETHER THE AMOUNTS CLAIMED BY ASSESSEE IN ITS P&L A/C WERE REVENUE OR CAPITAL IN NATURE. THE AO HAD APPLIED HIS MIND DURING ASSESSMENT PROCEEDINGS AND AFTER EXAMINING IN DETAI L THE EVIDENCE FURNISHED 6 BY ASSESSEE CAME TO THE CONCLUSION THAT THE AMOUNTS WERE ALLOWABLE AS REVENUE EXPENDITURE, AFTER DISALLOWING RS. 5,88,350 /- UNDER THE HEAD REPAIRS AND MAINTENANCE, TREATING THE SAME IN CAP ITAL FIELD. . THEREFORE, IT IS EVIDENT THAT REOPENING HAS BEEN DONE PURELY ON T HE BASIS OF CHANGE OF OPINION IN REGARD TO THE ITEMS MENTIONED IN THE REA SONS RECORDED BY AO, WHICH IS NOT PERMISSIBLE IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD. 320 ITR 56, WHEREIN IT 1 HAS BEEN HELD AS UNDER: 'ON GOING THROUGH THE CHANGES, QUOTED ABOVE, MADE T O S. 147 OF THE ACT, WE FIND THAT, PRIOR TO DIRECT TAX LAWS (AMENDMENT) ACT, 1987, REOPENING COULD BE DONE UNDER ABOVE TWO CONDITIONS AND FULFILLMENT OF THE SAID CONDITIONS ALONE CONFER RED JURISDICTION ON THE AO TO MAKE A BACK ASSESSMENT, B UT INS. 147 OF THE ACT (W.E.F. IST APRIL, 1989), ~Y ARE GIVEN A GO-BY AND ONLY ONE CONDITION HAS REMAINED, VIZ., THAT WHERE T HE AD HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMEN T, CONFERS JURISDICTION TO REOPEN THE ASSESSMENT. THEREFORE, P OST- IST APRIL, 1989 POWER TO REOPEN IS MUCH WIDER. HOWEVER, ONE NE EDS TO GIVE SCHEMATIC INTERPRETATION TO THE WORDS 'REASON TO BELIEVE' FAILING WHICH, WE ARE AFRAID, S. 147 WOULD GIVE ARB ITRARY POWERS TO THE AO TO REOPEN ASSESSMENTS ON THE BASIS OF 'ME RE CHANGE OF OPINION ' WHICH CANNOT BE PER SE REASON TO REOPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW AND POWER TO REASSESS. THE AO HAS GOT POWER TO REASSESS. BUR REASSESSMENT HAS TO BE BASED ON FULFI LLMENT OF CERTAIN PRECONDITION AND IF THE CONCEPT OF 'CHANGE OF OPINION' IS REMOVED, AS CONTENDED ON BEHALF OF THE DEPARTMENT, THEN, IN THE GARB OF REOPENING THE ASSESSMENT, REVIEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF 'CHANGE OF OPINION' AS AN INBUILT TEST TO CHECK ABUSE OF POWER BY THE AO' 7 8. FURTHER, WE ARE IN AGREEMENT WITH LD. CIT(A) THA T IN VIEW OF THE DECISION OF HONBLE SUPREME COURT, IN THE CASE OF G KN DRIVESHAFT LTD. (SUPRA), THE AO WAS REQUIRED TO DISPOSE OF THE ASSE SSEES OBJECTIONS TO THE REASONS RECORDED BY PASSING A REASONED ORDER AND NO T SUMMARILY REJECTING THE SAME WITHOUT ANY SPECIFIC FINDING. ON THIS BASI S REASSESSMENT PROCEEDINGS COULD NOT BE QUASHED BUT THE MATER COUL D BE RESTORED TO THE FILE OF AO. HOWEVER, SINCE WE FIND THAT THE REASONS RECO RDED DO NOT MEET THE MANDATE OF PROVISO TO SECTION 147 AND ARE PURELY ON THE BASIS OF CHANGE OF OPINION, THEREFORE, THE REASONS RECORDED BY AO CANN OT BE SUSTAINED IN LAW. IN VIEW OF ABOVE DISCUSSION, WE UPHOLD THE ORDER OF LD. CIT(A). 9. IN THE RESULT, DEPARTMENTS APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 08, 07,2015. SD/- SD/- (A.T. VARKEY) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 08-07-2015. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT(A) 4. CIT 5. DR (ITAT) 8