DCIT CIR 3(3), MUMBAI V. SICOM HOUSING DEVELOPMENT FINANCE LTD, MUMBAI

ITA 6405/MUM/2011

• Counselvise Citation: 640519914 RSA 2011
• Duration Of Justice: 3 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 16-12-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 19-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Audit objection; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Borrowed satisfaction
• Section: 143(3); 147; 148

Judgement Text

, , , , , ,, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI , , ! BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO.6405/MUM/2011 ASSESSMENT YEAR:2005-06 ACIT, CIRCLE - 3 (3) , ROOM NO.609, 6 TH FLOOR, AAYKAR BHAVAN, M.K.ROAD, MUMBAI-400020 ' ' ' ' / VS. M/S SICOM HOUSING DEVELOPMENT FINANCE LTD. C/O- SICOM,1 ST FLOOR, NIRMAL NARIMAN POINT, MUMBAI-400021 ( / REVENUE) ( ' %&' /ASSESSEE) P.A. NO.AABCS1131L ( ) ( ) ( ) ( ) / REVENUE BY SHRI NEIL PHILIP - DR ' %&' ( ) ( ) ( ) ( ) / // / ASSESSEE BY): SHRI JAYANT BHATT ' ( '* / / / / DATE OF HEARING : 09/02/2015 + + + + ( '* /DATE OF ORDER 09/02/2015 + + + + / / / / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) : THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATE D 28/06/2011 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) ERRED IN ANNULLING T HE ASSESSMENT, REOPENED U/S. 148, ON THE GROUND THAT CHANGE OF OPINION IS NOT A VALID GROUND FOR REOPENI NG THE M/S SICOM HOUSING DEVELOPMENT FINANCE LTD. . 2 ASSESSMENT, WITHOUT APPRECIATING THE FACT THAT THE ASSESSMENT WAS REOPENED NOT IN VIEW OF ANY CHANGE O F OPINION BUT ON THE BASIS OF REASONS TO BELIEVE THAT INCOME OF THE ASSESSEE CHARGEABLE TO TAX HAS ESCAPE D ASSESSMENT AS THE ASSESSEE HAS NOT DISCLOSED TRULY AND FULLY ALL FACTS, THUS FULFILLING THE BASIC COND ITIONS OF REOPENING THE ASSESSMENT AS ENVISAGED AS PER THE PROVISIONS OF SEC. 147'. 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) ERRED IN TREATING TH E LOSS OF RS.2,65,04,985/ - ARISING OUT OF SALE OF HOUSING FINANCE PORTFOLIO AS BUSINESS LOSS AS AGAINST CAPIT AL LOSS WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS CEASED TO CONDUCT THE HOUSING FINANCE BUSINESS AS S UCH THE LOSS INCURRED ON BUSINESS CLOSED DOWN IS A CAPI TAL LOSS AND NOT REVENUE LOSS'. 2. AT THE TIME OF HEARING, SHRI NEIL PHILIP, LD. DR , CONTENDED THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS), WITHOUT ASSIGNING ANY REASON, ANNULLED THE REOPENING OF ASS ESSMENT U/S 148 OF THE INCOME TAX ACT, 1961(HEREINAFTER THE ACT ) ON THE BASIS OF CHANGE OF OPINION, WITHOUT APPRECIATING THE FACT THAT THE ASSESSMENT WAS REOPENED ON THE BASIS OF PROPER REAS ON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAD ESCAPED A SSESSMENT AS THE ASSESSEE HAD NOT DISCLOSED THE MATERIAL FACTS T RULY AND FULLY. 2.1. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSE E, SHRI JAYANT BHATT, DEFENDED THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER BY CONTENDING THAT SINCE THE MATERIA L FACTS WERE DULY DISCLOSED BEFORE THE ASSESSING OFFICER AND AFT ER CONSIDERING THE SAME, THE ASSESSMENT WAS FRAMED, CONSEQUENTLY, IT WAS MERELY ON THE BASIS OF CHANGE OF OPINION, WHICH IS NOT PERMISSIBLE. M/S SICOM HOUSING DEVELOPMENT FINANCE LTD. . 3 2.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF FIN ANCING MAINLY HOUSE FINANCE ACTIVITIES. DURING THE RELEVA NT PERIOD, THE ASSESSEE SOLD ITS HOUSING FINANCE PORTFOLIO, INCURR ING LOSS OF RS.1,96,36,046/-. THE ASSESSMENT WAS FRAMED U/S 14 3(3) OF THE ACT THAT TOO AFTER DUE DELIBERATION ON THE SUBJECT, ALLOWING THE LOSS TO THE ASSESSEE. ON THE BASIS OF AUDIT QUERY, THE ASSESSMENT WAS REOPENED MENTIONING THAT THE LOSS OC CURRED ON SALE OF PORTFOLIO WAS TO BE TREATED AS CAPITAL LOSS . THE ASSESSING OFFICER ISSUED NOTICE TO THE ASSESSEE TO SHOW-CAUSE AS TO WHY THE IMPUGNED LOSS SHOULD NOT BE TREATED AS CAPITAL LOSS . THE CLAIM OF THE ASSESSEE WAS THAT SINCE THE ASSESSEE WAS IN THE BUSINESS OF ADVANCING LOAN AND MERELY SELLING THE PARTICULAR PORTFOLIO, THE ASSESSEES BUSINESS, HAS NOT COME TO AN END, RATHER THE ASSESSEE WIDENED ITS ACTIVITIES IN THE OTHER FIELD AND FURTH ER THE HOUSING FINANCE PORTFOLIO WAS NOTHING BUT STOCK IN TRADE AN D NOT THE INVESTMENT AS SUCH, THUS, IT WAS RIGHTLY CLAIMED AS A REVENUE LOSS. THE ASSESSEE ALSO CHALLENGED REOPENING OF TH E ASSESSMENT MERELY ON THE BASIS OF AUDIT QUERY. 2.3. ON APPEAL, BEFORE THE LD. COMMISSIONER OF INCO ME TAX (APPEALS), IT WAS HELD THAT SUCH REOPENING WAS MERE LY A CHANGE OF OPINION, WHICH IS NOT PERMISSIBLE. THE RELEVANT PORTION FROM THE IMPUGNED ORDER IS REPRODUCED HEREUNDER FOR READ Y REFERENCE:- I HAVE TAKEN NOTE OF THE A.O.S ORDER AS WELL AS THE APPELLANTS A/R SUBMISSION. HAVING TAKEN NOTE OF TH E SAME, I AM OF THE CONSIDERED VIEW THAT THE A.O. WAS NOT JUSTIFIED IN HIS ACTION FOR REOPENING OF THE ASSESS MENT AS M/S SICOM HOUSING DEVELOPMENT FINANCE LTD. . 4 ALL THE DETAILS WERE AVAILABLE ON RECORD. FURTHER TO THAT ONCE THE APPELLANT HAS MADE ALL THE DISCLOSURE OF A LL SALES OF HOUSING FINANCE PORTFOLIO, WHICH RESULTED INTO L OSS THEN IN MAY CONSIDERED VIEW REOPENING WAS NOT JUSTIFIED AS IT MERELY AMOUNTS TO CHANGE OF OPINION BY THE A.O. THU S, TAKING NOTE OF THE DECISIONS REFERRED ABOVE AS WELL AS ALSO TAKING NOTE OF ALL THE FACTS OF THE CASE, I CONSIDE R IT PROPER AND APPROPRIATE TO HOLD THAT THE A.O. WAS NOT JUSTI FIED IN REOPENING THE ASSESSMENT IN THE INSTANT CASE. ACCORDINGLY, THE ORDER OF THE A.O.S IS ANNULLED. XXXXXXXXXXXXXXXXXXXXXXXXXX I HAVE CONSIDERED THE A.O.S ORDER AS WELL AS THE APPELLANTS A/R SUBMISSION. HAVING CONSIDERED BOT H, I FIND THAT THE APPELLANT WAS ENGAGED IN THE BUSINESS OF HOUSING FINANCE PORTFOLIO BEFORE ITS DECISION TO PA RT AWAY TO SAID BUSINESS AND CONSEQUENTLY THE APPELLANT SOL D OUT ITS FINANCE BUSINESS, WHICH RESULTED LOSS TO THE AP PELLANT COMPANY. TAKING NOTE OF THE APPELLANTS SUBMISSION , I AM OF THE CONSIDERED VIEW THAT THE APPELLANT WAS ENGAG ED IN THE HOUSING FINANCE BUSINESS THEREFORE THE LOAN, WH ICH WAS TRANSFERRED BY THE APPELLANT TO THE TRANSFEREE WAS A CURRENT ASSET AND TRADING ITEM. IN VIEW OF THE SAME THAT THE APPELLANT DISCONTINUED THE BUSINESS WILL NOT AM OUNTS THAT THE APPELLANTS LOSS IS CAPITAL LOSS. IN MY C ONSIDERED VIEW THE A.O. WAS NOT CORRECT TO HOLD THAT THE SAID LOSS AS BUSINESS LOSS, AS THE SAME RESULTED DUE TO SALE OF CURRENT ASSET AND ALSO A TRADING ITEM. ACCORDINGLY, THIS G ROUND OF APPEAL IS ALLOWED. IF THE REASONS OF THE REOPENING BY THE ASSESSING OF FICER, CONCLUSION DRAWN IN THE IMPUGNED ORDER, MATERIAL AV AILABLE ON RECORD AND THE ASSERTIONS MADE BY THE LD. RESPECTIV E COUNSEL, IF KEPT IN JUXTAPOSITION AND ANALYZED, THERE IS UNCONT ROVERTED FINDING IN THE IMPUGNED ORDER THAT NECESSARY DETAIL S/MATERIAL FACTS WERE DULY AVAILABLE BEFORE THE ASSESSING OFFI CER WHILE FRAMING THE ORIGINAL ASSESSMENT. DURING ORIGINAL A SSESSMENT M/S SICOM HOUSING DEVELOPMENT FINANCE LTD. . 5 STAGE, THE CLAIM OF THE ASSESSEE WAS DULY ALLOWED B Y THE ASSESSING OFFICER. THE REOPENING OF DULY FRAMED AS SESSMENT WAS MERELY BASED UPON THE QUERY RAISED BY THE AUDIT PAR TY. IN A LANDMARK DECISION THE HONBLE APEX COURT IN KE LVINATOR OF INDIA LTD (2010) 320 ITR 561 HAS EVOLVED A BROAD P RINCIPLE. LIKEWISE IN GREEN WORLD CORPORATION VS ITO (2009) 3 14 ITR 81 (SC), THE HONBLE APEX COURT HELD THAT THE ORDER P ASSED BY THE ASSESSING OFFICER AT THE DICTATE OF THE CIT IS NUL LITY. LIKEWISE THE HONBLE HIGH COURT OF RAJASHTHAN SYNTEX LTD. (2 009) 313 ITR 221 HELD THAT INITIATION BASED ON THE OPINION OF T HE ASSESSING OFFICER OF OTHER PARTY, IS BORROWED SATISFACTION NOT SUFFICIENT REASON TO BELIEVE ESCAPEMENT OF INCOME. FURTHER, T HE HONBLE APEX COURT DISMISSED THE SLP OF THE DEPARTMENT (C N O.8167 OF 2009) AGAINST THE AFORESAID DECISION FROM HONBLE R AJASHTHNA HIGH COURT. WE NOTE THAT THERE IS NO FINDING IN THE ASSESSMENT ORDER THAT ANY INDEPENDENT ENQUIRY WAS MADE BY THE ASSESSING OFFICER OF THE PRESENT ASSESSEE RATHER HE REOPENED THE ASSESSMENT MERELY ON THE BASIS OF QUERY RAISED BY T HE AUDIT PARTY AND THERE WAS NO NEW TANGIBLE MATERIAL CAME TO THE LIGHT OF THE ASSESSING OFFICER AND HE ACTED MERELY ON THE BORROWED SATISFACTION/QUERY RAISED BY THE AUDIT PARTY, THUS, THE RATIO LAID DOWN IN THE AFOREMENTIONED CASES SUPPORTS THE CASE OF THE ASSESSEE. THE RATIO LAID DOWN IN INDIAN AND EASTER N NEWSPAPER SOCIETY VS CIT (119 ITR 996)(SC) FURTHER SUPPORTS T HE CASE OF THE ASSESSEE. THE HONBLE APEX COURT HAS HELD AS UNDE R:- THUS, CONTRARY TO THE DECISION OF THE SUPREME COURT , THE INSTRUCTION OF THE BOARD DIRECTS THAT MERELY ON RAI SING OF AUDIT OBJECTION REMEDIAL ACTION BY INITIATING PROCEEDINGS OF REASSESSMENT BE TAKEN NOTWITHSTANDING THAT THE AUTHORITY VESTED WITH POWER TO EXERCISE JURISDICTION FOR ISSUING NOTICE IS NOT SAT ISFIED ABOUT M/S SICOM HOUSING DEVELOPMENT FINANCE LTD. . 6 EXISTENCE OF SUCH CIRCUMSTANCES WHICH MAY WARRANT E XERCISE OF SUCH POWER. TO SAY THE LEAST, SUCH ULTRA VIRES INS TRUCTIONS CANNOT BE PRESSED INTO SERVICE TO SAVE THE INITIATION OF P ROCEEDINGS UNDER SECTION 147, IN THE ABSENCE OF HOLDING OF ANY BELIE F BY THE ASSESSING OFFICER, BY ARROGATING THE POWER TO ITSEL F BY THE BOARD BY ISSUING SUCH DIRECTIONS CONTRARY TO THE PROVISIO NS OF LAW AT THE PAIN OF SUBJECTING THE OFFICER TO PAIN OF EXPOSING HIM TO CHARGE OF INSUBORDINATION. EVEN OTHERWISE, THE IMPORTANT WORDS U/S 147 OF THE ACT ARE HAS REASON TO BELIEVE AND THESE WORDS ARE STRONGER THA N THE WORDS IS SATISFIED. THE BELIEF ENTERTAINED BY THE ASSES SING OFFICER MUST NOT BE ARBITRARY OR IRRATIONAL. IT MUST BE RE ASONABLE OR IN OTHER WORDS, IT MUST BE BASED ON REASONS, WHICH ARE RELEVANT AND MATERIAL. THE COURT, OF COURSE, MAY NOT INVESTI GATE INTO THE ADEQUACY OF SUFFICIENCY OF THE REASONS WHICH HAVE W EIGHED WITH THE ASSESSING OFFICER INCOMING TO SUCH BELIEF BUT T HE COURT CAN CERTAINLY EXAMINE WHETHER THE REASONS ARE RELEVANT AND HAVE A BEARING ON THE MATTERS IN REGARD TO WHICH THE ASSES SING OFFICER IS REQUIRED THE ENTERTAIN THE BELIEF BEFORE ISSUANC E OF NOTICE U/S 147. SUCH BELIEF MUST BE IN GOOD FAITH AND CANNOT PRETENCE. THE WORD OMISSION OR FAILURE TO DISCLOSE TRULY AN D FULLY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THA T YEAR POSTULATE A DUTY ON THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. THE DISCLO SURE MUST BE FULL AND ALSO TRUE WHICH ARE IN THE KNOWLEDGE OF TH E ASSESSEE AT THE RELEVANT TIME, THUS, MATERIAL FACTS MEANS PRIMA RY FACTS. IN THE PRESENT APPEAL THE ASSESSEE DULY DISCLOSED ALL MATERIAL FACTS BEFORE THE ASSESSING OFFICER AND THATS WHY THE ASS ESSMENT WAS FRAMED U/S 143(3) OF THE ACT AND IT WAS REOPENED BY THE M/S SICOM HOUSING DEVELOPMENT FINANCE LTD. . 7 ASSESSING OFFICER MERELY ON THE CHANGE OF OPINION, WHICH IS NOT PERMISSIBLE. EVEN ON THE BASIS OF REPLY OF THE ASS ESSEE ON 08/05/2008, THE ASSESSING OFFICER WAS OF THE OPINIO N THAT THE CLAIM OF THE ASSESSEE AND THE LOSS ON SALE OF HOUSI NG LOAN PORTFOLIO WAS REVENUE IN NATURE. IT IS NOT THE CAS E THAT ANY NEW MATERIAL CAME TO THE POSSESSION OF THE ASSESSING OF FICER AT THE LATER STAGE WHICH WAS NOT MADE AVAILABLE DURING ORI GINAL ASSESSMENT PROCEEDINGS. IN VIEW OF THESE FACTS, WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LD. COMMIS SIONER OF INCOME TAX (APPEALS). IT IS AFFIRMED. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN TH E PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES, AT THE CONCLUS ION OF THE HEARING, ON 09/02/2015. SD/ - (RAJENDRA) SD/ - (JOGINDER SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; ,' DATED : 09/02/201 5 F{X~{T? P.S/. '.. + ( .'/ 0/1' + ( .'/ 0/1' + ( .'/ 0/1' + ( .'/ 0/1'/ COPY OF THE ORDER FORWARDED TO : 1. 23 / THE APPELLANT 2. .423 / THE RESPONDENT. 3. 5 ( ) / THE CIT, MUMBAI. 4. 5 / CIT(A)- , MUMBAI 5. /78 .'' , , / DR, ITAT, MUMBAI 6. 89% : / GUARD FILE. +' +' +' +' / BY ORDER, 4/' .' //TRUE COPY// ; ;; ;/ // /< < < < (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI