SHUBH MANGAL FINVEST P. LTD, MUMBAI V. ITO 3(3)-2, MUMBAI

ITA 5783/MUM/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6301 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 09-08-2010
• Assessment Year: 2000-2001
• Appeal Filed On: 30-10-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MAHUA SARKAR
• Assessee Lawyers: NARAYAN ATAL
• Keywords: Reopening of assessment; Capital asset; Opportunity of being heard; Validity of assessment; Revised return; Reason to believe
• Section: 143(3); 148

Judgement Text

1 ITA 5783/M/09, M/S SHUBH MANGAL FINVEST P. LTD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I BEFORE SHRI D. MANMOHAN, V.P. AND SHRI P.M. JAGTAP, A.M. ITA NO. 5783/MUM/09 ASSESSMENT YEAR 2000-01 M/S SHUBH MANGAL FINVEST PVT. LTD., 161-C MITTAL TOWER, NARIMAN POINT, MUMBAI 21. PAN AAACS 7613 N VS. INCOME TAX OFFICER 3(3)-2, MUMBAI. APPELLANT RESPONDENT APPELLANT BY SHRI NARAYAN ATAL RESPONDENT BY MS. MAHUA SARKAR ORDER PER P.M. JAGTAP, A.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LD. CIT(A) XXXII, MUMBAI DATED 10.06.2009. 2. THE RELEVANT FACTS GIVING RISE TO THIS APP EAL ARE THAT THE ASSESSEE IS A COMPANY WHICH FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ORIGINALLY ON 31.11.2000 DECLARING A TOTAL INCOME OF ` 57,900/-. SUBSEQUENTLY, THE SAID RETURN WAS REVIS ED BY THE ASSESSEE ON 31.10.2001 DECLARING TOTAL LOSS OF ` 98,395/- AS PER THE NORMAL PROVISIONS OF THE ACT AND INCOME OF ` 16,739/- AS PER THE PROVISIONS OF SECTION 115JB. THE REVISED RETURN FILED BY THE ASSESSEE WAS PROCESSED BY THE A .O. U/S 143(1) ON 29.3.02. THEREAFTER THE ASSESSMENT WAS REOPENED BY THE A.O. BY ISSUING NOTICE U/S 148 ON 26.3.07 AFTER RECORDING HIS REASONS. IN RESPONSE TO THE SAID NOT ICE, A RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 31.5.07 DECLARING TOTAL INCOME OF ` 16,100/-.DURING THE COURSE OF ASSESSMENT PROCEEDINGS, OBJECTIONS WERE RAISED BY THE ASSESSEE CHALLENGING THE VALIDITY OF REOPENING 2 ITA 5783/M/09, M/S SHUBH MANGAL FINVEST P. LTD. OF ITS ASSESSMENT BY THE A.O. THE A.O. DID NOT FIN D MERIT IN THE SAID OBJECTIONS AND OVERRULED THE SAME FOR THE REASONS GIVEN IN THE ASS ESSMENT ORDER PASSED U/S 143(3) R.W.S. 143 ON 31.12.07. IN THE SAID ASSESSMENT, HE ALSO A DDED BUSINESS LOSS OF ` 21,53,800/- CLAIMED BY THE ASSESSEE ON SALE OF SHARES ON THE GR OUND THAT CONVERSION OF THE SAID SHARES INTO STOCK-IN-TRADE WAS NOT REFLECTED IN THE P&L AC COUNT OF THE ASSESSEE IN THE YEAR OF CONVERSION. 3. AGAINST THE ORDER PASSED BY THE A.O. U/S 143(3) R.W.S. 147, AN APPEAL WAS FILED BY THE ASSESSEE BEFORE THE LD. CIT(A) CHALLENGING THE VALIDITY OF THE SAID ASSESSMENT AS WELL AS DISPUTING THE DISALLOWANCE OF ` 21,53,800/- MADE BY THE A.O. ON ACCOUNT OF ITS CLA IM FOR BUSINESS LOSS ON SALE OF SHARES. THE LD. CIT(A) UPHELD THE VALIDITY OF ASSESSMENT MADE BY THE A.O. U/S 143(3) R.W.S. 147 ON THE GROUN D THAT RETURN FILED BY THE ASSESSEE WAS ORIGINALLY PROCESSED U/S 143(1) AND THE A.O. HAD BO NAFIDE REASONS TO BELIEVE THAT INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT. AS REGARDS THE DISALLOWANCE OF BUSINESS LOSS MADE BY THE A.O., THE LD. CIT(A) AGREED THAT THE ST AND OF THE ASSESSEE THAT SUCH DISALLOWANCE COULD NOT BE MADE MERELY BECAUSE THE C ONVERSION OF SHARES INTO STOCK-IN- TRADE WAS NOT REFLECTED IN THE P&L ACCOUNT OF THE A SSESSEE IN THE YEAR OF CONVERSION. HE, HOWEVER, STILL SUSTAINED THE SAID DISALLOWANCE MADE BY THE A.O. BY INVOKING EXPLANATION TO SECTION 73. AGGRIEVED BY THE ORDER OF THE LD. C IT(A), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 4. THE ISSUE RAISED IN GROUND NO. 1 RELATES TO THE VALIDITY OF ASSESSMENT MADE BY THE A.O. U/S 143(3) R.W.S. 147. 5. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSMENT WAS REOPENED BY THE A.O. IN THE PRESENT CASE TO VERIFY WHETHER THE CONVERSION OF CAPITAL ASSET INTO STOCK- IN-TRADE WAS PROPER OR NOT. HE CONTENDED THAT THE ASSESSMENT CAN BE REOPENED ONLY IF THE A.O. HAS REASON TO BELIEVE THAT TAXABLE INCOME OF T HE ASSESSEE HAS ESCAPED ASSESSMENT 3 ITA 5783/M/09, M/S SHUBH MANGAL FINVEST P. LTD. AND IT IS NOT PERMISSIBLE TO REOPEN THE ASSESSMENT JUST TO VERIFY ANY CLAIM MADE BY THE ASSESSEE WHICH WAS ALREADY ALLOWED IN THE ORIGINAL ASSESSMENT. HE ALSO CONTENDED THAT ALL THE MATERIAL FACTS RELATING TO THE CLAIM WERE F ULLY AND TRULY DISCLOSED BY THE ASSESSEE IN THE RETURN OF INCOME AND THERE BEING NO CASE OF ESC APEMENT OF INCOME FOR THE FAILURE OF THE ASSESSEE TO DISCLOSE SUCH MATERIAL FACTS AS MAD E OUT BY THE A.O., THE REOPENING OF ASSESSMENT WAS BAD IN LAW. 6. THE LD. D.R., ON THE OTHER HAND, CONTENDED THAT THE RETURN FILED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WAS ORIGINALLY PROCESS ED BY THE A.O. U/S 143(1) AND THERE BEING NO REGULAR ASSESSMENT MADE ORIGINALLY, THE A. O. WAS EMPOWERED TO REOPEN THE ASSESSMENT IF HE HAD REASONS TO BELIEVE THAT INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT. SHE INVITED OUR ATTENTION TO THE REASO NS RECORDED BY THE A.O. AS APPEARING IN THE ASSESSMENT ORDER AND CONTENDED THAT THE SAME WE RE SUFFICIENT TO GIVE A JURISDICTION TO THE A.O. TO REOPEN THE ASSESSMENT. IN SUPPORT OF TH IS CONTENTION, SHE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RA JESH JHAVERI STOCK BROKERS 291 ITR 510. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE RETURN ORIGINAL LY FILED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WAS PROCESSED BY THE A.O. U/S 143(1) AND THERE BEING NO ASSESSMENT ORIGINALLY MADE U/S 143(3), THE PROVISO TO SECTION 147 IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE REQUIRING THE A.O. TO ESTABLISH THAT ANY I NCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT BY REASON OF FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT. IN THE CASE OF RAJESH JHAVERI STOCK BROKERS (P) LTD. (SUPRA) CITED BY THE LD. D.R., THE HONBLE SUPREME COURT HAS HELD THAT TAXING INCOME ESCAPING ASSESSMENT IN THE CASE OF AN INTIMA TION U/S 143(1)(A) IS COVERED BY THE MAIN PROVISION OF SECTION 147 AS SUBSTITUTED W.E.F. 1.4.89 AND NOT THE PROVISO THEREIN. IT WAS HELD THAT ONLY ONE CONDITION THEREFORE HAS TO B E SATISFIED BY THE A.O. AND IF THE A.O. FOR WHATEVER REASON BELIEVES THAT THE INCOME HAS ES CAPED ASSESSMENT, IT CONFERS 4 ITA 5783/M/09, M/S SHUBH MANGAL FINVEST P. LTD. JURISDICTION TO REOPEN THE ASSESSMENT. A PERUSAL O F THE REASON RECORDED BY THE A.O. SHOWS THAT THE SAID REQUIREMENT WAS DULY SATISFIED IN AS MUCH AS THE A.O. HAD REASON TO BELIEVE THAT THE INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT. THIS BEING SO AND KEEPING IN VIEW THE DECISION OF HONBLE SUPREME COU RT IN THE CASE OF RAJESH JHAVERI STCOCK BROKERS P. LTD. (SUPRA), WE HOLD THAT THE RE OPENING OF ASSESSMENT MADE BY THE A.O. WAS IN ACCORDANCE WITH LAW AS RIGHTLY HELD BY THE LD. CIT(A) 8. IN GROUND NO. 2, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN CONFIRMING THE DISALLOWANCE MADE BY THE A.O. ON ACC OUNT OF ITS CLAIM FOR BUSINESS LOSS BY INVOKING EXPLANATION TO SECTION 73. 9. AS ALREADY NOTED, THE LD. CIT(A) ACCEPTED THE CO NTENTION AS RAISED ON BEHALF OF THE ASSESSEE BEFORE HIM THAT THE A.O. WAS NOT JUSTIFIED IN DISALLOWING ITS CLAIM FOR BUSINESS LOSS OF ` 21,53,800/- MERELY BECAUSE THE CONVERSION OF SHARE S INTO STOCK-IN-TRADE WAS NOT REFLECTED IN THE RELEVANT P&L ACCOUNT. HE, HOWEVER , STILL SUSTAINED THE DISALLOWANCE OF BUSINESS LOSS MADE BY THE A.O. BY INVOKING EXPLANAT ION TO SECTION 73. AT THE TIME OF HEARING BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS POINTED OUT THE MISTAKES COMMITTED BY THE LD. CIT(A) IN APPRECIATING THE REL EVANT FACTS AND FIGURES WHILE INVOKING EXPLANATION TO SECTION 73 IN THE CASE OF THE ASSESS EE. HE HAS CONTENDED THAT IF THE CORRECT FACTS AND FIGURES ARE TAKEN INTO ACCOUNT, EXPLANATI ON TO SECTION 73 WOULD NOT BE APPLICABLE IN ASSESSEES CASE. IN SUPPORT OF THIS CONTENTION, HE HAS RELIED ON THE DECISION OF SPECIAL BENCH OF ITAT MUMBAI BENCH IN THE CASE O F ACIT VS. CONCORD COMMERCIALS (P) LTD. 95 ITD 117. HE HAS SUBMITTED THAT NO OPPO RTUNITY, HOWEVER WAS GIVEN BY THE LD.CIT(A) TO THE ASSESSEE OF BEING HEARD BEFORE SUS TAINING THE DISALLOWANCE OF BUSINESS LOSS MADE BY THE A.O. BY INVOKING EXPLANATION TO SE CTION 73. ACCORDING TO HIM, IN THE ABSENCE OF SUCH OPPORTUNITY, THE ASSESSEE COULD NOT POINT OUT THE FACTUAL MISTAKES COMMITTED BY THE LD. CIT(A) AND ALSO COULD NOT RELY UPON THE DECISION OF SPECIAL BENCH OF ITAT IN THE CASE OF CONCORD COMMERCIALS (P) LTD. (SUPRA). KEEPING IN VIEW THESE SUBMISSIONS MADE BY THE LD. COUNSEL FOR THE ASSESSE E, WE FIND IT FAIR AND PROPER AND IN 5 ITA 5783/M/09, M/S SHUBH MANGAL FINVEST P. LTD. THE INTEREST OF JUSTICE TO SET ASIDE THE IMPUGNED O RDER OF THE LD. CIT(A) ON THIS ISSUE AND REMIT THE MATTER TO THE FILE OF LD. CIT(A) WITH A D IRECTION TO DECIDE THE SAME AFRESH AFTER GIVING A PROPER AND SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO. 2 OF ASSESSEES APPEAL IS THUS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON 24 TH NOVEMBER, 2010. SD/- SD/- (D. MANMOHAN) (P.M. JAGTAP) VICE PRESIDENT ACCOUN TANT MEMBER MUMBAI, DATED 24 TH NOVEMBER , 2010. RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXXII- MUMBAI 4. THE CIT- III MUMBAI 5. THE DR BENCH, I 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI 6 ITA 5783/M/09, M/S SHUBH MANGAL FINVEST P. LTD. DATE INITIALS 1. DRAFT DICTATED 1.11.2010, 16.11.10 SR.P.S./P.S. 2. DRAFT PLACED BEFORE AUTHOR 4.11.2010 , 16.11.10 SR.P.S./P.S. 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER. - J.M./A.M. 4.DRAFT DISCUSSED/ APPROVED BY SECOND MEMBER. J.M./A.M. 5. APPROVED DRAFT COMES TO THE SR.P.S./P.S. SR.P.S./P.S. 6. KEPT FOR PRONOUNCEMENT ON SR.P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S. 8. DATE OF WHICH FILE GOES TO THE HEAD CLERK. 9. DATE OF DISPATCH OF ORDER.