M/s. Mahanagar Telephone Nigam Limited, New Delhi V. DCIT, New Delhi

ITA 5957/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3835 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 03-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHEFALI SWAROOP
• Assessee Lawyers: ASHISH CHADHA
• Keywords: Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 37(1); 147; 148; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : E : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.5957/DEL/2014 ASSESSMENT YEAR : 2007-08 MAHANAGAR TELEPHONE NIGAM LIMITED, 5 TH FLOOR, 9, CGO COMPLEX, LODHI ROAD, NEW DELHI. PAN: AAACM0828R VS. DCIT, LTU, NEW DELHI. ITA NO.5292/DEL/2014 ASSESSMENT YEAR : 2007-08 DCIT, LTU, NEW DELHI VS. MAHANAGAR TELEPHONE NIGAM LIMITED, 5 TH FLOOR, 9, CGO COMPLEX, LODHI ROAD, NEW DELHI. PAN: AAACM0828R (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VED JAIN, ADVOCATE & SHRI ASHISH CHADHA, CA DEPARTMENT BY : MS SHEFALI SWAROOP, CIT DR ITA NOS.5957 & 5292/DEL/2014 2 DATE OF HEARING : 24.10.2017 DATE OF PRONOUNCEMENT : 25.10.2017 ORDER PER R.S. SYAL, VP: THESE TWO CROSS APPEALS ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE ARISE OUT OF THE ORDER PASSED BY THE CIT(A) ON 27.08.2014 IN RELATION TO THE A.Y. 2007-08. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSING OFFICER INITIATED REASSESSMENT PROCEEDINGS. THE ASSESSEES OBJECTIONS AGAINST THE INITIATION OF REASSESSMENT WERE DISMISSED. EX CONSEQUENTI AN ADDITION OF RS.1,97,40,000/- WAS MADE BY MEANS OF D ISALLOWANCE OF INTEREST ON CUSTOMER DEPOSIT ACCOUNTS. THE LD. CIT (A) UPHELD THE INITIATION OF REASSESSMENT PROCEEDINGS. ON MERITS, HE ALLOWED PART RELIEF. BOTH THE SIDES ARE AGGRIEVED AGAINST THE VIEW TAKEN BY THE LD. CIT(A) ON THEIR RESPECTIVE STANDS. 3. THE ASSESSEE IS PRIMARILY AGGRIEVED AGAINST UPHO LDING THE INITIATION OF REASSESSMENT PROCEEDINGS. ITA NOS.5957 & 5292/DEL/2014 3 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ASSESS ING OFFICER INITIATED REASSESSMENT PROCEEDINGS BY RECORDING THE FOLLOWING REASONS, WHICH HAVE BEEN REPRODUCED IN THE ASSESSMENT ORDER ITSELF :- 1. PERUSAL OF RECORDS SHOW THAT THE ASSESSEE HAS DEBITED INTEREST ON CUSTOMERS' DEPOSITS AMOUNTING TO RS 19.74 MILLION ( RS 1,97,40,000/-) TO THE PROFIT & LOSS ACCOUNT FOR THE F. Y. 2006-07 RELEVAN T TO AY 2007-08. THE ASSESSEE HAS CLAIMED THIS EXPENDITURE U/S 37 OF THE ACT BECAUSE THERE IS NO EXPRESS PROVISION IN THE ACT FOR ALLOWING SUCH EXPE NDITURE. THE ESSENCE OF DEDUCTIBILITY U/S 37 IS THAT THERE MUST BE FULFILLE D THE TWIN REQUIREMENTS OF EXPENDITURE AND THE FACTUM OF SUCH EXPENDITURE HA VING BEEN LAID OUT OR EXPENDED. THE EXPRESSION 'EXPENDITURE' 'WHAT IS PAI D OUT' AND 'SOMETHING WHICH IS GONE IRRETRIEVABLY. IN THIS CONNECTION REL IANCE IS PLACED ON THE JUDGMENT OF SUPREME COURT IN THE CASE OF INDIAN MOL ASSES CO. (PRIVATE) LTD. (37 ITR 66). IN THIS CASE THE HON'BLE SUPREME COURT HELD THAT EXPENDITURE, WHICH IS DEDUCTIBLE FOR INCOME TAX PUR POSE IS ONE WHICH IS TOWARDS A LIABILITY WHICH ACTUALLY EXISTS AT THE TI ME INCREASE IN LIABILITY AT ANY POINT OF TIME PRIOR TO PAYMENT CANNOT FALL WITH IN THE MEANING OF THE WORD 'EXPENDITURE' IN SECTION 37 (1). THE REQUIREME NT OF EXPENDITURE IS NOT MET IN THIS CASE. SIMILARLY THE REQUIREMENT OF MONE Y 'EXPENDED OR LAID OUT' IS ALSO NOT SATISFIED AND THUS CLAIM OF DEDUCTION I S NOT ALLOWABLE U/S 37 (1) . 2. IN THE A. Y. 2006-07 THE ENTIRE AMOUNT OF THESE DEPOSITS WERE DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSE SSEE AS THE SAME WAS TREATED ON A NONEXISTENT HEAD OF ACCOUNT HELD TO BE NOT PAYABLE BY THE ASSESSEE AND WERE ENTIRELY TAXED IN THAT YEAR. 3. IN VIEW OF THE ABOVE I HAVE REASON TO BELIEVE TH AT INCOME OF RS 19.74 MILLION (RS.1,97,40,000/-) HAS ESCAPED ASSESSMENT W ITHIN MEANING OF SECTION 147 WHICH WARRANTS ISSUE OF NOTICE U/S 148. ' ITA NOS.5957 & 5292/DEL/2014 4 5. IT CAN BE SEEN FROM THE ABOVE REASONS THAT THE A SSESSEES CLAIM FOR DEDUCTION OF INTEREST ON CUSTOMERS DEPOSIT ACCOUNTS AMOUNTING TO RS.1.97 CRORE AND ODD WAS HELD TO BE WRONGLY ALLOWE D U/S 37(1) OF THE ACT IN THE BACKGROUND OF THE ORDER PASSED BY THE AS SESSING OFFICER FOR THE ASSESSMENT YEAR 2006-07 IN WHICH THE ENTIRE AMO UNT OF SUCH INTEREST WAS DISALLOWED. IT IS RELEVANT TO NOTE THAT THE AS SESSMENT ORDER FOR THE ASSESSMENT YEAR 2006-07 WAS PASSED BY THE ASSESSING OFFICER U/S 143(3) ON 30.12.2009, A COPY OF WHICH IS AVAILABLE ON PAGE 91 ONWARDS OF THE PAPER BOOK. ORIGINAL ORDER U/S 143(3) FOR THE ASSES SMENT YEAR UNDER CONSIDERATION WAS ALSO PASSED ON THE SAME DATE, NAM ELY, 30.12.2009, A COPY OF WHICH IS ALSO AVAILABLE ON PAGE 42 AND 43 O F THE PAPER BOOK. INTERESTINGLY, BOTH THE ORDERS WERE PASSED BY THE S AME AO. THE ASSESSING OFFICER ACCEPTED THE RETURNED INCOME AND DID NOT MAKE ANY ADDITION IN THE ORIGINAL ORDER PASSED U/S 143(3) FO R THE YEAR UNDER CONSIDERATION. WHEN WE PERUSE THE REASONS RECORDED , PURSUANT TO WHICH A NOTICE U/S 148 WAS ISSUED ON 27.03.2012, IT IS CL EARLY BORNE OUT THAT THE ENTIRE FOCUS FOR INITIATION OF REASSESSMENT IS ON T HE VIEW TAKEN BY THE ASSESSING OFFICER FOR THE A.Y. 2006-07 DISALLOWING SIMILAR INTEREST. IT IS ITA NOS.5957 & 5292/DEL/2014 5 OBVIOUS THAT ORDER U/S 143(3) FOR THE YEAR UNDER CO NSIDERATION WAS PASSED ON THE SAME DATE, NAMELY, 30.12.2009, ON WHI CH THE ORDER FOR THE ASSESSMENT YEAR 2006-07 WAS PASSED. WE ARE UNABLE TO COMPREHEND THE BASIS FOR INITIATION OF THE EXTANT REASSESSMENT PRO CEEDINGS, BEING, THE ORDER PASSED FOR ASSESSMENT YEAR 2006-07. WHEN THE ASSESSING OFFICER PASSED THE ORIGINAL ORDER FOR THE INSTANT YEAR U/S 143(3) OF THE ACT, HE WAS FULLY AWARE OF THE ASSESSMENT ORDER PASSED FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR ON THE SAME DATE IN WHICH SUCH DISALLOWANCE OF INTEREST WAS MADE. HAVING ACCEPTED THE DEDUCTIB ILITY OF INTEREST ON DEPOSITS IN THE ASSESSMENT ORDER FOR THE INSTANT YE AR, WE FAIL TO APPRECIATE AS TO HOW THE ASSESSING OFFICER COULD LATER ON TAKE COGNIZANCE OF THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2006-07, PASSE D SIMULTANEOUSLY WITH THE ASSESSMENT ORDER FOR THE CURRENT YEAR, AS A BEDROCK FOR THE INITIATION OF REASSESSMENT PROCEEDINGS. IT IS A TR ITE LAW THAT REASSESSMENT CANNOT BE INITIATED ON A MERE CHANGE OF OPINION. T HE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA (2010) 320 ITR 561 (SC) HAS HELD THAT A MERE CHANGE OF OPINION IS IMPERMISS IBLE FOR INITIATING THE REASSESSMENT PROCEEDINGS. IT HAS FURTHER BEEN OBSE RVED THAT THERE SHOULD ITA NOS.5957 & 5292/DEL/2014 6 BE SOME TANGIBLE MATERIAL COMING INTO THE POSSESSIO N OF THE ASSESSING OFFICER AFTER THE PASSING OF ORIGINAL ORDER WHICH C AN FORM THE BASIS FOR INDICATING THAT THE INCOME CHARGEABLE TO TAX ESCAPE D ASSESSMENT. WE ARE CONFRONTED WITH A SITUATION IN WHICH THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2006-07, CONSIDERED AS A BASIS FOR INITIATING THE REASSESSMENT, WAS PASSED ON THE SAME DATE ON WHICH THE ASSESSMENT ORDER FOR THE CURRENT YEAR WAS PASSED. IT SHOWS TH AT WHEN THE AO PASSED ORIGINAL ORDER FOR THE CURRENT YEAR ALLOWING DEDUCT ION OF INTEREST ON CUSTOMERS DEPOSIT ACCOUNTS, HE WAS FULLY AWARE OF T HE SIMILAR EXPENDITURE HAVING BEEN DISALLOWED FOR THE PRECEDIN G YEAR. STILL ALLOWING DEDUCTION IN THE INSTANT YEAR WAS A CONSCI OUS AND CONSIDERED DECISION ON THE POINT. THUS IT IS MANIFEST THAT THE RE IS ABSENCE OF ANY TANGIBLE MATERIAL COMING INTO THE POSSESSION OF THE ASSESSING OFFICER AFTER THE PASSING OF THE ORIGINAL ASSESSMENT ORDER U/S 143(3) FOR THE YEAR UNDER CONSIDERATION INDICATING ESCAPEMENT OF INCOME . AS SUCH, IT IS EVIDENT THAT THE ASSESSING OFFICER INITIATED REASSE SSMENT PROCEEDINGS ON A MERE CHANGE OF OPINION WITHOUT THERE BEING ANY TA NGIBLE MATERIAL. RESPECTFULLY FOLLOWING THE JUDGMENT IN THE CASE OF KELVINATOR (SUPRA) ITA NOS.5957 & 5292/DEL/2014 7 AND OTHER NUMEROUS JUDGMENTS ON THE POINT, WE SET A SIDE THE INITIATION OF REASSESSMENT PROCEEDINGS AND THE CONSEQUENTIAL ORDE R PASSED BY THE ASSESSING OFFICER. IN VIEW OF OUR DECISION ON THE INVALID INITIATION OF REASSESSMENT PROCEEDINGS, THERE IS NO NEED TO DISPO SE OF THE GROUNDS RAISED BY BOTH THE SIDES ON MERITS. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED AND THAT OF THE REVENUE IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 25.10.201 7. SD/- SD/- [KULDIP SINGH] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 25 TH OCTOBER, 2017. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.