GODREJ INDUSTRIES LTD, MUMBAI V. ASST CIT RG 10(2), MUMBAI

ITA 5307/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79151 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 09-06-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 23-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K SAHU
• Keywords: Business income; Retrospective amendment; Bad and doubtful debts; Reason to believe; Reassessment proceedings
• Section: 142(1); 115JB; 147; 148; 139

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G B ENCH, MUMBAI . , !'# $ $ $ $ , %& '()* , %+ ,- % # BEFORE SHRI D.MANMOHAN, VICE PRESIDENT AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./ I.T.A. NO.5307/MUM/2012 ( . . . . / ASSESSMENT YEAR :2004-05 M/S. GODREJ INDUSTRIES LTD., C/O KALYANIWALLA & MISTRY, KALPATARU HERITAGE, 127, M.G. ROAD, MUMBAI-400 001 / VS. THE ACIT, RANGE 10(2), AAYAKAR BHAVAN, MUMBAI-400 020 -/ %+ ./ 0 ./ PAN/GIR NO. : AAACG 2953R ( /1 / APPELLANT ) .. ( 23/1 / RESPONDENT ) /1 4 % / APPELLANT BY: SHRI JITENDRA JAIN 23/1 5 4 % / RESPONDENT BY: SHRI R.K. SAHU 5 6+ / DATE OF HEARING :12.06.2014 7. 5 6+ / DATE OF PRONOUNCEMENT :18.06.2014 ,%8 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST T HE ORDER OF THE LD. CIT(A)-21, MUMBAI DT.15.05.2012 PERTAINING TO A.Y. 2004-05. 2. THE GRIEVANCES OF THE ASSESSEE READ AS UNDER: ITA NO. 5307/M/2012 2 1) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFF ICER IN INVOKING THE PROVISIONS OF SECTION 147 OF THE ACT. 2) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER I N INVOKING THE PROVISIONS OF SECTION 147 OF THE ACT IN VIEW OF THE FACT THAT THE PROCEEDINGS WERE INITIATED AFTER FOUR YEAR S FROM THE END OF THE ASSESSMENT YEAR UNDER CONSIDERATION, AND THERE WAS NO FAILURE ON THE PART OF THE APPELLANT TO DISC LOSE TRULY AND FULLY ALL MATERIAL FACTS NECESSARY FOR THE ASSE SSMENT. 3) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER I N INVOKING THE PROVISIONS OF SECTION 147 OF THE ACT, AS HE COU LD NEVER HAVE HAD REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. 4) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER I N RESORTING TO REASSESSMENT PROCEEDINGS ON ACCOUNT OF A MERE CH ANGE IN OPINION ON THE SAME SET OF FACTS, WHICH TANTAMOUNTS TO THE ASSESSING OFFICER REVIEWING THE ACTION OF HIS PREDE CESSOR. HAVING REGARDS TO THE FACTS AND CIRCUMSTANCES OF TH E CASE AND IN LAW, THIS ACTION IS NOT PERMISSIBLE AND THE REASSESSMENT PROCEEDINGS REQUIRE TO BE QUASHED. 5) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT THE ASSESSING OFFICER WAS JUSTIFIED IN REOPENING THE ASSESSMENT SINCE HE HAD DISPOSED OF T HE PRELIMINARY OBJECTIONS RAISED BY THE APPELLANT IN A CCORDANCE WITH THE DECISION OF THE SUPREME COURT IN GKN DRIVE SHAFTS (INDIA) LTD. VS. CIT REPORTED IN 259 ITR 19. 6) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT THE ASSESSING OFFICER WAS JUSTIFIED IN REOPENING THE ASSESSMENT WITHOUT APPRECIATING THE F ACT THAT THE ASSESSING OFFICER ERRED IN STATING THAT IN RESP ONSE TO THE NOTICE UNDER SECTION 143(2) AND 142(1) OF THE ACT, THE AUTHORISED REPRESENTATIVES ATTENDED AND SUBMITTED D ETAILS. 7) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER I N ITA NO. 5307/M/2012 3 DISALLOWING AN AMOUNT OF RS.31,06,906/- UNDER SECTI ON 115JB OF THE ACT ON THE GROUND THAT THE PROVISION F OR DOUBTFUL DEBTS CONSTITUTES AN UNASCERTAINED LIABILITY AND HE NCE IS REQUIRED TO BE ADDED BACK WHILE COMPUTING BOOK PROF ITS UNDER SECTION 115 JB OF THE ACT. 3. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING AND TRADING. RETURN OF INCOME WAS FILED ON 25.10.2004 DECLARING TOTAL INCOME OF RS. NIL AS PER THE NORMAL PROVISIONS OF THE ACT AND RS. 44,04,24,450/- U/S. 115JB OF THE ACT. THE ASSESSMENT WAS FRAMED U/S. 14 3(3) VIDE ORDER DT. 28.12.2006 DETERMINING TOTAL INCOME AT RS. NIL UNDE R THE NORMAL PROVISIONS OF THE ACT AND RS. 50,35,22,313/- U/S. 1 15 JB OF THE ACT. SUBSEQUENTLY THE ASSESSMENT WAS REOPENED BY WAY OF ISSUE OF NOTICE U/S. 148 OF THE ACT DT. 11.3.2011. 3.1. THE ASSESSEE ASKED FOR THE REASONS RECORDED FO R THE REOPENING OF THE ASSESSMENT. THE REASONS FOR THE REOPENING WERE COMMUNICATED TO THE ASSESSEE. THE ASSESSEE OBJECTED TO THE REOPENING O F THE ASSESSMENT. THE AO DISMISSED THE OBJECTION RELYING UPON THE DECISIO N IN THE CASE OF DR. AMINS PATHOLOGY LABORATORY 252 ITR 673, IN THE CAS E OF PRAFUL CHUNILAL PATEL/VASANT CHUNILAL PATEL 236 ITR 832 AND IN THE CASE OF RAKESH AGGARWAL 225 ITR 496. AFTER REJECTING THE OBJECTIO N RAISED TO THE PROCEEDINGS INITIATED U/S. 147, THE AO PROCEEDED IN THE CASE BY SERVING STATUTORY NOTICES U/S. 143(2) AND 142(1) OF THE ACT . 3.2. ON PERUSAL OF THE PROFIT AND LOSS ACCOUNT, BAL ANCE SHEET AND TAX AUDIT REPORT AND THE COMPUTATION OF TOTAL INCOME U/ S. 115JB OF THE ACT, THE AO NOTICED THAT THE ASSESSEE HAS NOT ADDED BACK THE PROVISION FOR DOUBTFUL DEBTS AND ADVANCES AMOUNTING TO RS. 31,06, 906/- AND THE PROVISION FOR GRATUITY AMOUNTING TO RS. 11,00,000/- . THE ASSESSEE WAS SHOW CAUSED IN THIS RESPECT. AFTER RECEIVING THE R EPLY OF THE ASSESSEE, THE ITA NO. 5307/M/2012 4 AO PROCEEDED WITH THE BELIEF THAT PROVISION FOR DOU BTFUL DEBTS AND PROVISIONS FOR GRATUITY ARE NOT ASCERTAINED LIABILI TIES THEREFORE THESE PROVISIONS ARE REQUIRED TO BE ADDED BACK TO THE COM PUTATION OF BOOK PROFIT U/S. 115JB OF THE ACT AND COMPUTED THE REASS ESSMENT PROCEEDINGS. 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) AND REITERATED ITS CLAIM THAT REOPENING IS BAD IN LAW. IT WAS SUBMITTED BEFORE THE LD. CIT(A) THAT THE ASSESSEE HAD FURNISHED A DE TAILED STATEMENT FOR COMPUTING THE BOOK PROFIT U/S. 115JB OF THE ACT WHE REIN ADJUSTMENTS MADE TO BOOK PROFIT WERE CLEARLY DISCLOSED. IT WA S FURTHER EXPLAINED THAT THE ASSESSEE HAD ALSO FILED AN EXPLANATORY STATEMEN T GIVING DETAILED NOTE TO THE COMPUTATION OF BOOK PROFIT U/S. 115JB OF THE ACT WHEREIN IT HAS BEEN EXPLAINED AND DISCLOSED THE ADJUSTMENTS MADE T O THE BOOK PROFIT WHILE COMPUTING THE INCOME LIABLE TO TAX UNDER THE PROVISIONS OF THE ACT. IT WAS STRONGLY CONTENDED THAT THE FACTS RELATING T O THE PROVISION FOR BAD DEBTS AND PROVISION FOR GRATUITY WERE ALREADY DISCL OSED IN THE RETURNS/ACCOUNTS THEREFORE THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECE SSARY FOR ASSESSMENT AS CONTEMPLATED IN PROVISO TO SEC. 147 OF THE ACT. 5. THESE SUBMISSIONS BY THE ASSESSEE DID NOT FIND A NY FAVOUR FROM THE LD. CIT(A) WHO WAS OF THE OPINION THAT THE ASSESSME NT ORDER CANNOT BE HELD TO BE INVALID. ON MERITS OF THE CASE, THE LD. CIT(A) WAS OF THE OPINION THAT BY VIRTUE OF THE AMENDMENT MADE IN SEC . 115JB BY FINANCE ACT 2009 WITH RETROSPECT EFFECT DISALLOWANCE OF THE PROVISIONS FOR DOUBTFUL DEBTS WAS JUSTIFIED. HOWEVER, THE LD. CIT (A) ALLOWED THE APPEAL ON THE ADDITION OF RS. 11,00,000/- BEING PRO VISION FOR GRATUITY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR A.Y. 1997-98. ITA NO. 5307/M/2012 5 6. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. T HE LD. COUNSEL FOR THE ASSESSEE TOOK US TO THE REASONS FOR ISSUE OF NO TICE U/S. 148 OF THE ACT AND POINTED OUT THAT CONSIDERING THE REASONS FOR RE OPENING OF THE ASSESSMENT, IT CANNOT BE SAID THAT THE ASSESSED HAS NOT DISCLOSED FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSME NT. THE LD. COUNSEL FURTHER STATED THAT THE DETAILS RELATING TO THE PRO VISION FOR DOUBTFUL DEBTS AND THE PROVISION FOR GRATUITY WERE VERY MUCH AVAIL ABLE DURING THE COURSE OF THE ORIGINAL ASSESSMENT PROCEEDINGS AS PER THE C OMPUTATION OF TOTAL INCOME. IT IS THE SAY OF THE LD. COUNSEL THAT THER E WAS NO FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN U/S. 139 OR I N RESPONSE TO A NOTICE ISSUED U/S. 142(1) OR SEC. 148 NOR THERE IS ANY FA ILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS NECESSARY FOR THE ASSESSMENT. THE LD. COUNSEL CONCLUDED BY SAYING TH AT THE REOPENING IS BAD IN LAW READ WITH THE FIRST PROVISO TO SEC. 147 OF THE ACT. TO SUPPORT HIS CONTENTION, THE LD. COUNSEL RELIED UPON THE DEC ISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DIL LTD. VS ACIT 343 ITR 296. 7. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. IT IS THE S AY OF THE LD. DR THAT THE ASSESSMENT HAS BEEN REOPENED ON THE BASIS OF THE AM ENDMENT MADE TO SEC. 115JB WITH RETROSPECTIVE EFFECT FROM 1.4.2001 AND SINCE THE REOPENING WAS IN LINE WITH THE AMENDMENT IT IS VALI D. THE LD. DR RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN T HE CASE OF M.K. VENKATACHALAM 34 ITR 143, HIGH COURT OF DELHI IN TH E CASE OF ESTER INDUSTRIES LTD 215 TAXMAN 673, HIGH COURT OF DELHI IN THE CASE OF ESTER INDUSTRIES LTD. 221 TAXMAN 22, HIGH COURT OF BOMBAY IN THE CASE OF INDIAN HUME PIPE CO. LTD. 348 ITR 439 AND HIGH COUR T OF BOMBAY IN THE CASE OF RABO INDIA FINANCE LTD. 356 ITR 200. ITA NO. 5307/M/2012 6 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOWE R AUTHORITIES AND THE JUDICIAL DECISIONS RELIED UPON BY BOTH SIDES. IT IS NOT IN DISPUTE THAT THE REOPENING IS DONE AFTER THE EXPIRY OF FOUR YEAR S FROM THE END OF THE RELEVANT ASSESSMENT YEAR. THEREFORE, THE FIRST PRO VISO TO SEC. 147 SQUARELY APPLIES ON THE FACTS OF THE CASE. ALL THA T HAS TO BE CONSIDERED IS WHETHER THERE WAS ANY FAILURE ON THE PART OF THE AS SESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSE SSMENT FOR THE YEAR UNDER CONSIDERATION. A PERUSAL OF THE COMPUTATION OF INC OME CLEARLY SHOW THAT WHILE COMPUTING THE NORMAL BUSINESS INCOME, THE AS SESSEE HAS ADDED PROVISION FOR DOUBTFUL DEBTS AND PROVISION FOR GRAT UITY WHICH MEANS THAT THESE DETAILS WERE VERY MUCH AVAILABLE BEFORE THE A O. IT IS THE CASE OF THE REVENUE THAT BECAUSE OF THE AMENDMENT MADE TO S EC. 115JB WITH RETROSPECTIVE EFFECT, THE REOPENING OF THE ASSESSME NT IS GOOD IN LAW. HOWEVER, WE FIND THAT THE HONBLE JURISDICTIONAL HI GH COURT IN THE CASE OF DIL LTD., ON IDENTICAL FACT HAS HELD AS UNDER: ADMITTEDLY, THE POSITION IS THAT THE REOPENING IN THE PRESENT CASE, BY A NOTICE DATED MARCH 8, 2011, FOR THE ASSESSMENT YEAR 2004-05 IS BEYOND THE PERIOD OF FOU R YEARS FROM THE END OF THE ASSESSMENT YEAR. THE REASONS FO R REOPENING CONTAIN ABSOLUTELY NO REFERENCE TO THERE BEING ANY FAILURE ON THE PART OF THE ASSESSEE TO FULLY AND TR ULY DISCLOSE ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. WE, TH EREFORE, FIND MERIT IN THE CONTENTION OF COUNSEL APPEARING O N BEHALF OF THE ASSESSEE THAT THE PRIMARY REQUIREMENT SET OU T IN THE PROVISO TO SECTION 147 HAS NOT BEEN FULFILLED. THAT APART, IT IS EVIDENT THAT IN SO FAR AS THE DIMINUTION IN THE VAL UE OF INVESTMENT OF RS. 1.28 CRORES IS CONCERNED, EXPLANA TION (1)(I) WAS INSERTED INTO THE PROVISIONS OF SECTION 115JB BY THE FINANCE (NO. 2) ACT, 2009, WITH RETROSPECTIVE E FFECT FROM APRIL 1, 2001. CLAUSE (I) OF EXPLANATION (1) WAS IN TRODUCED TO INCLUDE THE AMOUNT OR AMOUNTS SET ASIDE AS PROVI SION FOR DIMINUTION IN THE VALUE OF INVESTMENT. IN VIEW OF T HE ITA NO. 5307/M/2012 7 RETROSPECTIVE AMENDMENT OF LAW BY PARLIAMENT, THE ASSESSING OFFICER MAY HAVE REASON TO BELIEVE THAT I NCOME HAS ESCAPED ASSESSMENT. BUT THAT IN ITSELF IS NOT S UFFICIENT FOR REOPENING AN ASSESSMENT BEYOND THE PERIOD OF FOUR Y EARS. BEYOND THE PERIOD OF FOUR YEARS WHEN AN ASSESSMENT IS SOUGHT TO BE REOPENED, THERE MUST BE A FAILURE ON T HE PART OF THE ASSESSEE TO FULLY AND TRULY DISCLOSE ALL MATERI AL FACTS NECESSARY FOR ASSESSMENT. IN FACT, THE RETROSPECTIV E AMENDMENT OF LAW BY PARLIAMENT WOULD NEGATE THE INF ERENCE WHICH IS SOUGHT TO BE DRAWN OF THE FAILURE TO DISCL OSE MATERIAL FACTS. IN SO FAR AS THE BUSINESS DEVELOPME NT EXPENDITURE OF RS. 10.79 LAKHS IS CONCERNED, HERE A GAIN IT IS EVIDENT FROM THE ORDER OF ASSESSMENT THAT THE CLAIM OF THE ASSESSEE WAS DISALLOWED BY THE ASSESSING OFFICER AN D THE AMOUNT WAS ADDED BACK TO THE INCOME. SIMILARLY, IN REGARD TO THE GRATUITY AND SUPERANNUATION AS WELL, THERE I S MERIT IN THE CONTENTION OF LEARNED COUNSEL THAT THERE IS EX FACIE NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE THE MATERIAL FACTS. THE REASONS DISCLOSED TO THE ASSESSEE ON JUL Y 11, 2011, IN FACT, MERELY INDICATE A REASON TO BELIEVE THAT I NCOME HAS ESCAPED ASSESSMENT. THERE IS NO REFERENCE WHATSOEVE R TO THE FORMATION OF AN OPINION THAT THERE WAS A FAILURE ON THE PART OF THE ASSESSEE TO FULLY AND TRULY DISCLOSE ALL MAT ERIAL FACTS. IN THESE CIRCUMSTANCES, THE BASIS ON WHICH THE REOP ENING IS SOUGHT TO BE EFFECTED IS CONTRARY TO LAW. RULE IS A CCORDINGLY MADE ABSOLUTE BY QUASHING AND SETTING ASIDE THE IMP UGNED NOTICE DATED MARCH 8, 2011. THERE SHALL BE NO ORDER AS TO COSTS. 9. FACTS OF THE CASE IN HAND ARE IDENTICAL TO THE F ACTS OF THE CASE BEFORE THE HONBLE JURISDICTIONAL HIGH COURT, THEREFORE RE SPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF DIL LTD (SUPRA) WE HOLD THAT THE REOPENING OF THE ASSES SMENT IS CONTRARY TO LAW. WE, ACCORDINGLY, QUASH AND SET ASIDE THE IMPU GNED NOTICE U/S. 148 OF THE ACT. 10. BEFORE CLOSING, THE DECISIONS RELIED UPON BY TH E LD. DR ARE CONTRARY TO THE FACTS OF THE CASE THEREFORE NOT APP LICABLE. ITA NO. 5307/M/2012 8 11. SINCE WE HAVE SET ASIDE THE NOTICE U/S. 148 OF THE ACT, WE DO NOT FIND IT NECESSARY TO DECIDE THE ISSUE ON MERITS OF THE CASE. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH JUNE, 2014 . ,%8 5 . +% 9 :, ; 18.6.2014 5 < SD/- SD/- (D.MANMOHAN ) (N.K. BILLAIYA) !'# /VICE PRESIDENT %+ ,- / ACCOUNTANT MEMBER MUMBAI; :, DATED 18.6.2014 . . ./ RJ , SR. PS ,%8 ,%8 ,%8 ,%8 5 55 5 26' 26' 26' 26' =%'.6 =%'.6 =%'.6 =%'.6 / COPY OF THE ORDER FORWARDED TO : 1. /1 / THE APPELLANT 2. 23/1 / THE RESPONDENT. 3. > ( ) / THE CIT(A)- 4. > / CIT 5. '?< 26 , , / DR, ITAT, MUMBAI 6. < @ / GUARD FILE. ,%8 ,%8 ,%8 ,%8 / BY ORDER, 3'6 26 //TRUE COPY// ! !! ! / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI